Have you started planning for retirement yet?
You should be. Ideally, retirement planning should begin as soon as you enter the workforce. In my opinion, it is something that should be taught starting at the grade school level. It seems to be getting better, but I’m always shocked at how many people walk out the door on their last day of employment and ask themselves. “What now?”
They didn’t plan. They had some vague notion of social security or the equivalent in their country. Perhaps they looked forward to the day when they didn’t have to work anymore. But they didn’t give any thought to what they would need to pay for and how they would manage it. Some people retire after as little as 25 to 30 years in the workforce. Then, have another 25 to 30 years or more left with no clue as to how to manage them.
Then there are people like me, and hopefully you. The planners. The people with spreadsheets and charts and lists, all full of retirement plans. If this is you, that’s great. But you need to sit down and take another look at your plans. There may be things you haven’t quite thought out yet. Or something you have thought of, but not in quite the correct way. Because one thing is certain. When you retire, things change.
You will need more money for these things.
If you have built a solid plan for your retirement, you likely have a spreadsheet built. I discussed how to do this here. It should map out yearly expenses and incomes covering the rest of your life. And more. Because, of course, you don’t really know how long you will live. And, for the most part, these numbers are based on your current expenses.
Many of these will stay the same, at least for the mid-term. Utilities and food shouldn’t change much. But you will likely travel more, assuming travel is more accessible then than now. You will be retired. It’s time to do those things you’ve wanted to do and see those places you’ve wanted to see. And that takes money.
When I was making our plan, we were already traveling quite a bit, but it was limited by available vacation time. So for our retirement plan, I tripled that number. You do you, but don’t short-change yourself. This is what you have been saving for all these years.
Medical insurance is something many people don’t think about, at least in the US. When you are working, you may have a plan paid for by your employer. If not, you most likely have a program that is deducted from your check each week. It’s a reasonable number because it’s a large group plan. And it’s just another deduction like taxes and (hopefully) your 401K contribution.
And when you reach 65, you know that Medicare will kick in. But Medicare isn’t free. And neither are the supplemental plans you will need or want. Trust me, as you get close to 65, people will be coming out of the woodwork to advise you on plans available. Most of these, by an amazing coincidence, are plans that they want to sell you. But there are independent consultants out there. And the best of them are paid by the plan providers. But they are not dependent on any of them, so they will give you sound advice on what to choose based on your circumstances. And best of all, it’s free. Take advantage of this early. The choices are mind-boggling.
But you also need to consider the gap between when you retire, and you reach 65. You may be entitled to a Cobra plan for the short term, but that isn’t free either. You may be able to keep your group plan but at a higher rate. Probably much higher. In the years between retirement and Medicare, medical insurance will most likely be your largest expense if you live in the US.
You may need less money for these things.
You will no longer have your daily commute, so transportation costs will certainly come down. If you are a couple, it is even possible only to have one car. We tried it temporarily five years ago and we still only have one car.
Home expenses will drop if you down-size, and you probably should. Look around your current home. How much of that space do you use? I highly recommend an over-55 community. The houses are right-sized, the amenities are designed for active, retired adults, and you will be among peers who will become lifelong friends.
But regardless, because of the new home’s size and modern efficiency, your utility bills should plummet. But your mortgage expense may or may not go down, depending on how long you have been in your current home.
These things will be different.
Obviously, your income will change, perhaps radically. But take everything into account. Do you have a retirement or pension plan where you work? Will there be any one-time cash disbursement upon retirement that could be turned into an annuity. Speaking of annuities, it’s probably time to revisit life insurance and long-term care insurance. Does it still make sense? Can you stop payments on them yet still retain current value?
And don’t discount social security and disbursement of 401K plans. You paid into those plans; it’s your money.
Speaking of long-term care, that is something we struggled with for a bit. After all, the varying levels of assisted-living facilities are costly. As much or more than a mortgage. But think about it. If you and your partner have to move into one of those facilities, you will no longer need a mortgage. Or likely pay utilities. You may or may not need a vehicle and those associated expenses. The travel budget you tripled may get cut, perhaps drastically.
In our spreadsheet, I added a pretty high number for assisted living for X number of years later in life. But by the time I deducted all the expenses I would no longer have, it was a wash.
As you get closer to, and certainly after, retirement, you should shift investments into safer areas. At that point, the money-making phase of your life should be over. Now you are in the money-spending phase. Enjoy that. But safety doesn’t mean your money won’t still grow unless you put it under your mattress. And even there, it won’t decrease due to fluctuations in the market.
This is probably the area I focused on the least. And, as it turns out, that was a good thing. Because our net worth after retirement has remained pretty much a straight line, rather than the slowly declining, (and steadily depressing) graph that I drew. Don’t get me wrong; it was still a good plan. We had enough to see us through. But growth on our money made up for more expenses than I considered.
As I said, retirement planning should begin at a young age. But if, like most of us, you have only given cursory glances at that time, get started. You will be retired for, hopefully, many years, decades even. You want it to be not only comfortable but fun. And that takes money.
Start planning now, and enjoy a long and happy retirement.