- Talk with your spouse and make sure that you are on the same page.
- What does a day, a week and a month in retirement look like. What is it that you will be doing?
- Where will you be living in retirement?
- Pick an exact date to retire. You and your spouse.
- What are your living expenses now? Take your time with this. Be accurate and complete.
- What will your living expenses in retirement look like? Don’t forget budgeting for fun, travel, medical expenses, car purchases, kid support/assistance, spoiling grand kids, and home improvements.
- it would be real nice to have no mortgage, no charge card debt or other debts in retirement.
- When you construct your budget, differentiate between necessary expenses and discretionary expenses. If things get tight, you want to have some room to reduce expenses and still be okay.
- Determine your Social Security income or pension income on your retirement dates.
- Add up all the gross income from Social Security, pension and any income from working in retirement.
- Have your tax person do a hypothetical tax return in retirement for you, using the above gross income. How much is left after taxes?
- Does what is left after taxes cover your expenses? If so congratulations, but don’t forget to account for inflation. If not, you better have a nest egg that can make up the shortfall.
- How big is your nest egg?
- is your investment strategy appropriate for retirement?
- What is your estimate of what it will earn?
- Can you take out what it earns in an average year, pay taxes, and make up the shortfall from your Social Security or pension income? Don’t forget to factor in inflation. Can you survive two or three years in a row of flat or negative returns?
- If on average you are taking more from your nest egg than it can earn, how long to you have?
- If the numbers aren’t looking too good, can you reduce your expenses and still be okay?
- If reducing expenses does not work, does some part time work in retirement help?
- if working in retirement doesn’t help, does a reverse mortgage help?
- If the everything looks good, then go for it. If not, retirement, you will be working for a while longer than planned.
- Make sure you have a large Emergency Reserves Account just in case.
- Monitor your expenses and investment performance and withdrawals.
- Make some adjustments if necessary.
- Have fun?
Michael McNamara, Ph.D., CFP®
CERTIFIED FINANCIAL PLANNERTM
*Any financial advice in this article is intended to be generic in nature. Readers should consult with their own financial advisors before implementing any advice or suggestions above.