Preparations to Retire, depending on where you are on life’s journey, retirement may seem like a distant mirage, or it may close faster than expected.
You might think that deciding when to start preparing for retirement requires complicated algorithms. Yes, there may be some math involved, but the simple answer is: if you haven’t started preparing yet, now is the time to get started!
The 80% rule
Many financial professionals recommend saving enough to provide 80% of your pre-retirement income in your retirement years so that you can maintain your standard of living. However, following this rule is not an exact science, because the spending structures for each household can be very different. However, it is a good place to start. How do we get to 80%? Living expenses generally decrease in retirement because costly commutes, investment in business clothes, and lunch out 5 days a week are reduced or eliminated. The other big expense that often changes is housing. When you retire, it’s common to trade your 3-, 4-, or 5-bedroom home for something smaller, easier, and less expensive to maintain.
Preparing for retirement when you are young
When you are younger, preparing for retirement can be a fairly simple process. The main considerations are life insurance and savings. This cannot be overstated: now is the time to buy life insurance. If you are young and healthy, the rates are much more likely to be low. This can’t be an exaggeration either: now is also the time to start saving. Every penny you save now can bring you closer to your goal. As any older person can tell you, life is full of surprises that end up costing you money, and these cases have the potential to interfere with your savings strategy.
Longevity considerations
Another consideration is that we are living longer. In the United States in 1960, life expectancy for men was 67 years. By 2016, life expectancy had increased to more than 76, with an even longer life expectancy in subsequent years, as medicine advances and we become more aware of behaviors that affect our health. [I] Women tend to live even longer, with an average life expectancy of about 81 years.
Life expectancy rates are essentially average, with low and high numbers in the mix. If you are lucky enough to exceed the average life expectancy, your retirement savings may become slim in your later years, a time when you may not be able to generate supplemental income.
Manage your expenses
Whether you’re young or aging, the time to start saving is now. But if you’re nearing retirement age, it’s also time to take an honest look at your spending. Part of the trick to stretching your retirement savings is eliminating unnecessary costs. If you are considering moving to a smaller home to cut costs, and are feeling adventurous, you may consider moving to a different state with a lower tax rate to enjoy your golden years. If you are younger, it is still a good time to evaluate your budget and eliminate any unnecessary expenses that you can.
For younger people, time is their ally when it comes to saving for retirement, but waiting to start saving can leave you with less than you bargained for in the future. If you are closer to retirement age, there is still time to build up your savings and examine your projected expenses. Talk to your financial professional today about the options that may be available to you!