We all know the process. Estimate how much money you will need in retirement (which can range anywhere from 70% to over 100% of your pre-retirement income), determine your available income sources (like pensions and Social Security payments), and then calculate how much you will need to save annually so that you can retire on time. (What if You’ve Forgotten to Save for Retirement?)
On the surface, planning for retirement seems like a largely mathematical exercise, but if you treat it as such, you are missing one big component – YOU! Before you get your calculator out and start crunching numbers, first visualize what you want your retirement to be like.
Retirement doesn’t have to be a time to slow down. It can be the beginning of a whole new and exciting chapter of your life. Your current living expenses may have very little to do with your retirement expenses. Here are a few questions to ask yourself as you begin to paint a picture of your retirement future:
- When do you want to retire? Putting a date on your retirement will allow you to estimate how much you will need to have saved by that date in order to finance the rest of your life. (Need to Make Up for Lost Time?)
- Do you plan to stay in your current home, trade down to a smaller one, or move to a different city? Moving into a smaller home can be a good way to lower your expenses during your retirement years. So can moving to a place with a lower cost of living. On the other hand, maybe retirement is the time to finally buy your dream home or move to an exciting city. If you plan on moving, be sure to calculate the cost of living in your new area and any increase/decrease you expect in mortgage payments. (Learn more about Choosing Where to Live After Retirement.)
- What debts will you still be paying off? Will you be able to pay off your mortgage by your retirement date? What about car payments or student loans for you or your children? These debts all need to be added to your retirement calculation, or you need to plan on how pay them off before you retire.
- Will you continue to work after retirement? Many of us are enjoying better health for longer in our lives, so deciding to work part time or full time after retirement is an excellent way to help your retirement savings last longer. Start thinking about where you will work and how much you can expect to earn. Do you have any hobbies or interests that can be turned into paying jobs? Are you planning to start a business after retirement?
- How will you spend your free time? What hobbies will you pursue? How much and where will you travel? It’s important to add these things into your retirement budget. If you want to travel internationally twice a year, buy a membership at a local golf club, or take up sailing, you will need to find a way to cover all of these costs.
- How will you pay for medical costs? It is impossible to guess what medical challenges will come your way, especially in your later years, but if you have certain conditions now or a genetic risk for them, you can begin to plan how to deal with those costs if they arise. Will your employer provide health insurance during retirement, or will you need to purchase insurance to supplement Medicare coverage?
- What would happen financially if your spouse died? This is a question no one likes to think about, but it’s important, especially if you are relying on your spouse’s pension and/or Social Security payments, which may change when he is gone. Also, if your spouse relies on your income,make sure you have a plan in place for that possibility. (You can learn more on this topic in our widowhood article archive.)
Answering these questions should give you a clearer picture of what your retirement will be like and how much you should be saving now. Creating a retirement vision can help you stay motivated over the years as you continue saving.
Learn more about important retirement savings information from our retirement archive of articles.