As a Financial Advisor I have had many occasions to advise people how to prepare for retirement. All too often I am struck by how unprepared people are and how they haven’t focused on the basics of family finances prior to retirement. In hopes that Common Sense will catch on, here is my list of 10 questions you should ask yourself when you are contemplating retirement:
Number 1 – Have you discussed “retirement” with your spouse? Remember men are from Mars, women are from Venus. Partners will have very different views of what “retirement” means. Start the discussion now.
Number 2 – What are your expenses now? If you don’t track expenses now, start immediately. Don’t even think about retirement if you don’t know how much money you are spending now.
Number 3 – What is your income now? If your monthly expenses are more than your monthly income now, you probably can’t afford to retirement.
Number 4 – What are your expenses projected to be when you retire? Make an educated guess. Retirement expenses, at least in the beginning, can be higher than your current expenses if you have an extensive bucket list with new hobbies, travel, etc.
Number 5 – What is your total net income expected to be when you retire? See number 6.
Number 6 – What are the sources of your income going to be when you retire? Remember, you can withdraw about 3.5% of a “balanced” portfolio each year. (Do you know what balanced means?) Also remember that if this withdrawal comes from a regular retirement account, you must pay taxes on the withdrawn amount. If you need $2000 a month, $24,000 a year, from investment accounts (retirement or regular), you will need about $1 million dollars in your investment portfolio when you retire. (The dollar amount you can withdraw will depend on which account the money comes from and your federal and state income tax rates.)
Number 7 – Do you pay off your credit card debt each month? If the answer is “no,” you cannot retire. First priority – declare a financial emergency, stop using your credit card(s), and pay off your credit card debt.
Number 8 – What is your plan for your house and your mortgage? Pay off the mortgage before retirement (ideal)? Keep your current house, downsize, rent out a room?
Number 9 – How will you cover medical expenses? Remember, “healthy” is more important that “wealthy.” Fidelity projects that in 2013 the average American couple will face $220,000 in healthcare bills after age 65 despite Medicare, not including dental expenses and Long Term Care. Assumes they have no employer-provided health coverage; male lives 17 years, female 20 years. When you retire will you have adequate medical insurance and sufficient funds set aside for self-paid medical expenses?
Number 10 – How will you spend your free time? It is very important that you keep physically, socially, and mentally active, and out of your spouse’s way.
