One of the scariest, albeit most important, aspects of planning for retirement is the financial aspect. Although some individuals can plan on having a nice pension, the majority cannot, leaving them to rely on social security systems and savings.
No matter when you plan to retire, you need to ensure you are financially ready to do so. Keep reading as we discuss financial planning for retirement and everything that it entails.
Do You Have Enough Money to Retire?
The question of how much retirement will cost you is a difficult one, namely because it looks different for everyone. But also, because it can be a difficult number to predict. You have no idea how long you will live after retirement. It could be 5 years, it could be 30. You also have no idea what medical challenges you may eventually face.
For that reason, we recommend overestimating how much money you will need but also keeping in mind that retirement may look vastly different for you depending on your lifestyle.
The AARP has a tool to help you estimate, but in general terms, you should have 70% annual income x 30 set aside for your eventual retirement. The AARP website can help you find a more precise estimate based on your current savings and expected benefits, but we suspect that the average person reading this article will find they aren’t saving enough for retirement.
How to Save More for Retirement
You aren’t alone, we found as we were writing this article that we weren’t saving enough for retirement ourselves. Again, it is truly a challenge to predict how much you will actually need, and with rising costs, it can be challenging to set aside more than you currently are.
That being said, we recommend saving what you can for retirement without affecting your current lifestyle. And if you still find that you aren’t saving enough, well we have some tips to help you make it through retirement financially without meeting the savings numbers the AARP tells you that you need to make.
Tips to Improve Your Financial Standing Before Retirement
1. Focus on Paying Off Your Mortgage
The average individual spends about 1/3rd of their income on their house or apartment. If you are currently in the process of paying off a mortgage, any extra money you have should go to paying it off completely before you retire.
This way, when you do retire, you won’t have a house payment to stress about—something that will eat up your savings and pension quickly. Additionally, if things go south, you will have an asset you can sell. Just make sure you have a plan to move in with a friend or family member if the worst does come to pass.
2. Retire Later
Many countries are raising their retirement age. And though retiring later is the best way to up the resources at your disposal, we aren’t suggesting merely waiting until 67 or 70 to quit your corporate job.
Instead, we recommend shifting the way that you see retirement. Instead of seeing it as a complete end-all, where you don’t leave your home for several days on end, consider working a part-time job for several years after leaving your traditional job at 65.
This could be as a simple as working at a retail store where employees get a decent discount and have flexible hours. It can be pursuing a passion project that you didn’t have a career in because it didn’t pay well. Just because you are tired of punching a clock 9 to 5 doesn’t mean you have to immediately move to living on benefits and savings.
We truly believe that this will eventually become the norm, especially with the rising costs and inflation. And thus, we implore you to begin thinking about this aspect of retirement now.
3. Design Your Monthly Retirement Budget Now
The key to a successful retirement is a well-planned budget—something you should begin crafting around five years before your retirement date. (You can’t really plan it any sooner due to changing prices and market situations.)
But, if you are 60, and plan to retire at 65, it is time to sit down and write out what you plan to spend on a monthly basis. Chances are, there might be some costs you can reduce now, such as streaming services you aren’t interested in, and memberships you plan to cancel at retirement.
You also need to take this time to plan how you will handle emergencies. Something which had been on the rise is a health savings account, which most employers offer. As you draw close to retirement, this is something you should consider opening during your last few years employed, as it can help you get a nice nest egg for emergencies. You can also just start a second savings account, ensuring you add a little extra to it the closer you get to retirement.
Although medical emergencies tend to vary, we advise having a $10,000 account set aside purely for medical emergencies.
4. Make a Plan to Prevent Emotional Spending
Almost everyone is excited about retirement, but few plan for how they will fill their time without a 40-hour work week. This can quickly lead to emotional spending, such as shopping, therapy, or booking activities you cannot really afford on your retirement budget.
Thus, we urge you to consider how you will handle the emotional aspect of retirement before actually making the leap. Will you start new hobbies? Volunteer? Or maybe you need to ensure you have the cash set aside to see a therapist. Either way, plan on how you will deal with your emotions now, as this can be extremely costly later on.
5. Sell Things You Don’t Use
Our last advice for retirement is to sell things you don’t use to supplement your income. We all know how it is, you have amassed many trinkets and items over the years—some of which are probably worth some money. Though it may be tempting to hold onto these, to look at them in your last days, we all know how this story ends.
Eventually, your retirement will end, and your family will be left sifting through your belongings. So, unless there are family heirlooms you absolutely must pass on when you die, we recommend beginning the process of downsizing during your retirement, getting yourself a nice little side income to help bridge the gap and ultimately lower the pressure on your friends and family.
Related: When Should You Write a Will?
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