Time is funny. It seems to speed up with each passing year. You’re 40 and, in a blink, nearly 50. Then 50 zooms past and people start to ask when you might retire.
Have no fear. Retirement means a lot of things. It’s also a time for major financial planning. You might feel it’s late in the game to think about money, but it’s not: You will live longer than you think, and your cost of living is by no means guaranteed to fall over time.
Do you know how long your money will last? Can you plan 20 or 30 years out with no idea how your health — or the economy — will hold up?
Well, no, but it’s not as if you have a choice. The key to planning with so many unknowns is accepting that your plan should change over time. Perhaps not drastically, but having no plan is by far the riskiest course.
Let’s consider two numbers — 55 and 64. Using a simple online tool, it’s easy to see that a 55-year-old with $1 million can expect a retirement income stream of $82,102. To get to a similar figure as a 64-year-old, however, you would need closer to $1.5 million.
The reason is time. At 55 you have nearly a decade for your money to compound. At 64 you will need to own investments that are more conservative and, thus, will grow more slowly.
So, now comes the planning. If you’re expecting $82,000 from your investments, can you live on that? If so, consider the mistakes some folks make as they close in on 64:
1. Taking out a new mortgage
You’re nearly done with the original home mortgage and you decide to buy a second place at the beach or parlay equity into dream digs. So, you sign on for decades of new, fixed debt. Whoops.
2. Writing big checks to kids
Tuition, medical bills, vacations, gifts. Parents love to play Santa Claus, but helping your kids be bigger consumers is a huge mistake. That money is gone.
3. Kicking off retirement with a bang
It’s probably best to put aside those round-the-world tickets and new car purchases until at least 12 months into your new financial reality. You’ll be happier with your choices by far.
4. Failing to consider your health
If it’s not too late, consider long-term care insurance. Residential care facilities can cost thousands of dollars a week, possibly bankrupting you.
5. Living longer
We all want to live a long life, but we want to spend as if the end is near. Nothing changes about this once you retire. Don’t bet on 78. That might be the average, but that only means half of us live longer and half of us don’t make it.