Planning for a Secure Retirement

Thinking about retirement is a daunting task. We know we have to do it, but the complexity of the process leaves most of us with just a series of thoughts playing over and over in our heads without making any progress. While it may be hard to tackle everything at once, below is a list of five items that should be addressed to lead you to the path for a secure retirement.

1. The “Money Door.” Knowing how much money is coming in (salaries, income from investments, pensions, Social Security) and how much is going out (expenses) is your first step in the right direction of retirement planning. Understanding your current money flow will help you to see if there are areas of over-spending or ways to save more money. Next, picture what your retirement will look like. Will you have a smaller home or an apartment? Will you spend lots of time travelling? What are your hobbies and what will they cost? One of the biggest myths is that most people will spend less in retirement. The reality is that even though you may no longer be making college payments, they are often replaced with expensive hobbies. All of this needs to be figured into your new budget. Starting to understand this several years before you retire is helpful.

2. Debt be gone. Getting rid of debt as you enter into retirement must be a priority. If you do have debt, the first step will help you create a plan to pay it off over time. With a reduced income, it will be wise to pay off debt.

3. There’s no place like home. Where will you live when you retire? Downsizing can often be a great idea — who wants to worry about all the maintenance of a large home? Many people think it’s great not only to downsize, but also to move to another state that has more affordable housing or a better tax structure. While this may sound appealing, if you are moving far away from your family, you must consider the costs of visiting several times a year, which can be quite expensive.

4. Maximize your retirement plan savings. Now is the time to contribute the maximum dollars to your retirement plans. If you are 50 or older, retirement accounts have an extra amount of “catch up” dollars you can contribute. This amount varies by plan, so it is best to check with your accountant.

5. Create or review your investment plan. Understanding how you are invested is critical to how your money will grow until you reach retirement and how much income it will produce once you are in retirement. Taking 3 to 5 percent a year from your investment portfolios is generally a good rule of thumb. When times are rough you want to be able to live off of 3 percent so it has a chance to grow back. In addition, most investors believe that as they approach retirement they should be increasing the bonds in their portfolios. However, with bond prices currently at historic highs and yielding very little, bonds have lots of risk and are prone to losing value. Consider buying high-quality dividend paying stocks, some which have better income potential than five and 10 year Treasurys. Stocks will also help you to keep ahead of inflation which is essential in retirement, especially with the rising rates of medical costs.

How much do you need to retire? There are all sorts of calculators available online, but in the end it’s often difficult to explore every expense that will come up. In the end, what will lead you to a comfortable retirement is some solid advance planning, living a modest lifestyle well within your means, and a prudent investment plan.

Catherine Avery is a member of the DailyWorth Connect program. Read more about the program here.

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