retirement ready
Choosing Your Perfect Retirement Timing is Half the Battle

If there’s one thing that most Americans have in common, it’s the desire for a solid and secure retirement. But, what does prepping for retirement actually require? There are quite a few roadblocks that can pop up as one navigates the road to retirement, so you should remain vigilant and focused. Oftentimes, people wait too long to start asking necessary questions even though they know how important it is to begin saving as early as possible.

No matter what retirement means to you or what your goals are, you should be able to answer these five basic questions as you get ready to retire:

Question 1: What Are You Most Excited to Do in Retirement?

When you’re young, thinking about how you’re going to spend your retirement can be hard to envision. However, as you approach the 10- to 15-year window prior to retirement, these are things that you need to be thinking about, as they’ll lay the foundation for how you should plan financially. The best way to determine how you want your retirement to look is to think about how you want to be spending your time. Try reflecting on some of these questions to guide your thinking:

  • How do you currently spend your free time?
  • How often do you plan on traveling, either on trips or to visit friends and family? Will these vacations be a regular part of your retired life?
  • Do you want to work part-time, volunteer, or start a business in retirement?
  • Do you want to move or stay where you’re living now?

If these questions seem difficult to answer because retirement is still too far off, try focusing on how you enjoy spending your free time now. Your dream retirement may end up being the perfect opportunity for you to devote more time to the activities and hobbies that you’re already enjoying today.


SEE ALSO: Tips for Creating Your Retirement Paycheck


Question 2: How Long Will You Need Your Money to Last? 

This question can be an awkward and difficult question to answer, however, it’s crucial for planning. None of us are immortal, which means that at some point we’re inevitably going to pass away and our life expectancy plays a significant role in our retirement planning projections. This is because the longer you live in retirement, the greater your cost of retirement will be. The other piece to determining how far you’ll need your money to stretch in retirement is deciding when you want to retire.

Though nobody knows for sure how long they will live, life expectancy has been on the rise, so there’s a good chance that you will live into your 80’s or even 90’s. Today, the average life expectancy for women is 88 years old and for men, it is 85 years old. However, you should use realistic expectations based upon your own personal health history, along with that of your blood relatives.

Question 3: How Much of Your Retirement Savings Will You Actually Need?

The best way to approach the task of budgeting for retirement is to think about what lifestyle you will want in retirement. Will it be the same lifestyle you have now? Or, will you need more money to fund exciting retirement adventures? Research suggests that retirement expenses will fall somewhere between 70% to 90% of your preretirement income depending on what lifestyle you plan on maintaining.

While determining how much savings you need, make sure to keep in mind any planned lifestyle expenses, future inflation rates, unexpected or anticipated health care expenses, and whether or not you’ll be debt-free.

If you plan on retiring within five years or less, you should complete an actual budget plan for retirement. Though this number will ultimately be an educated guess, the closer you can get to determining how much money you need, the more secure you’ll feel when you make the decision to retire.


SEE ALSO: The Pillars of Retirement Planning


Question 4: How Much Should You Start Saving Today?

The most obvious answer is to save as much as you possibly can. If research is right and you end up needing somewhere around 80% of your preretirement income, then you should be saving 10% to 20% of your income throughout your working years. This can be hard to do, especially if you’re young enough that retirement feels far away or you’re burdened with debt such as student loans or mortgage payments.

Whatever the reasoning, if you’re unable to save as much as you’d like at the moment, try to see if you can make use of employee benefits that could help relieve some of your savings burden, such as contributing up to your employer’s matching contribution in a 401(k). Once you’re on firm financial footing and can begin saving significantly, try running a basic retirement calculation to assess your target savings amount so you can get yourself back on track.

Question 5: How Much Can You Afford to Spend Yearly Once in Retirement?

If you were to follow conventional wisdom shared among financial planners, you should rely on a “safe withdrawal rate” of 4% per year, or the Rule of 25. The theory behind this rule is that you should have at least 25 times your first year’s income for your retirement nest egg. So, for someone who has $50,000 a year in retirement expenses, they should aim to save $1.25 million to reach their income goal. Remember, though, that this is a general guideline and will be different depending on your personal situation.

No matter what, the most important thing is to remain flexible with your finances during your early retirement years as you figure out what works for you. Your withdrawal rate will ultimately end up depending on the sequence of investment returns and inflation rates you encounter during the first 10 years of your retirement.

Concluding Thoughts 

Retirement planning is the top financial planning priority for the majority of Americans. However, prepping for retirement can feel like a herculean task. The most important thing to remember is that the best way to be sure you’re prepared for retirement is that the sooner you begin preparing the better off you will be. The above questions are meant to help you focus as you begin prepping for your dream retirement.

Here at Andersen, we’re committed to making your retirement dreams a reality. If you’d like professional help getting your retirement plans on track, set up an appointment with one of our professional financial planners today.