An Easy Retirement Planning Checklist

Posted on June 20, 2014 at 7:19 AM PDT by

Financial advisors often start off their conversations with clients by taking stock of their current financial situation. Their debts, their spending habits, their budgeting skills and so on.

That’s good information for grounding expectations, but it leads necessarily to the second, more important conversation: How to make sure your retirement plan works.

That’s a matter of determining how well an individual can set a retirement plan goal and stick to it, year after year. It all comes down to five basic numbers, however, and you can determine them on your own with a little bit of effort.

retirement planning

So, get out a calculator and a scratch pad and have a go. Do this exercise in the company of your spouse or partner, someone who can jog your memory and help you make reasonable assumptions about your shared future.

1. Get real about your goals

Most people focus on the age they want to stop working, but that number can become a moving target. Your health might deteriorate early, or you might be downsized out of a job and perhaps be forced to change careers late in life to keep an income.

Instead, decide on a number. That will help you to be sure to save enough to get to that number in a reasonable number of years.

2. Estimate all of your retirement income

Adding up the number is a matter of taking into account all of the places you can count on money in retirement. Remember, $1 million properly invested will generate about $40,000 in income, while the Social Security of a fully vested couple is likely to produce a similar income flow. Add in any pensions or annuities. Now consider the impact of part-time work in retirement.

3. Estimate a realistic outgo

Once you have the incoming number, however provisional, now figure your cost of living. Will you be paying a mortgage? How will you finance healthcare costs? Travel, food, insurance? A starting budget should come in well below your initial income expectation. If not, consider ways to cut costs.

4. Expect the unexpected

What one big thing might wreck your plan? It’s easy to consider the potential for catastrophe, such as a storm wrecking your home. But it’s far more likely that you will self-sabotage your own retirement. Overspending in your first few years of living on a fixed income can drastically affect your ability to grow your retirement wealth for later on.

5. Consider longevity

How long will your money last you? Part of the problem is that you are likely to live more years than you might guess. The other part is that inflation never rests, so your spending power is on the decline all those years, too. A proper investment portfolio balances those forces out and protects you from long-term problems.