How to Take Steps Towards Retirement Readiness

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By georgelarson
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Retirement your way.

Retirement planning does not mean you need to save one million dollars for retirement. It means that you need to have an idea of how you want to retire so you can draft a retirement plan, that will assist you in setting as much money as possible aside, and lead you to retirement readiness. What are the elements of a retirement plan?

Difficulty: Moderate

Instructions

Things You'll Need:

Know what you want your retirement to include.
Know how much that lifestyle will cost.
Know, financially, how your are going to get from today to your retirement.

Step 1

Retirement Planning - Save money

You have heard this over and over, Start saving young and use the combination of time and compounding to grow your retirement fund. This is, however, easier said then done. Most people have good intentions about saving for retirement. But few know when they should start and how much they should save.

You may feel that the expenses of today make it too difficult to start saving for tomorrow. It's easy to think that you will begin to save for retirement when you reach a more comfortable income level, but the longer you put if off, the harder it will be to accumulate the amount you need. Do you have a plan for what that income level is? Lifestyles tend to absorb increases in wages and the extra money you thought you would have after that raise is no longer available.

The rewards of starting to save early for retirement far outweigh the cost of waiting. If you feel you do not have enough extra money to start saving for retirement remember this. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to pay your retirement plan like it were a monthly bill. Allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement were a required expense.
Step 2

Retirement Planning - Guesstimate costs

How much will retirement cost you? Keep in mind that the costs you have in today's terms will increase due to inflation. There are also expenses, most importantly health care costs, that will increase as you get older and have additional medical needs. What do you see as your retirement lifestyle? Will it include traveling, or other expenses that you do not have in your lifestyle today?

Keep a journal of retirement desires. Force yourself to think about what you foresee 20 - 30 years from today. Find out what those activities cost now and calculate how much those same activities will cost when you retire. Do not perceive this as an unimaginable task. There are many calculators online or ask your Financial Advisor for assistance. This list will change as you get closer to retiring so what you journal now is not set in stone. This is an exercise in your retirement strategy that you need to continue to review and be mindful of as you travel through your working years towards retirement.

Where will you live? This is a large part of your retirement plan. Do you plan on staying in your home or move to a State with lower taxes or is less expensive to live. Do you plan on paying your home off so you are mortgage free or downsizing to a smaller residence? Are you using your home as an investment for your retirement? Remember that you need to live somewhere so your entire capital gains, when you sell your house, will not be to live on.
Step 3

Retirement Planning - Calculate your income

After finishing the earlier steps for your retirement strategy you have a good idea of what your retirement lifestyle will cost. Now it is time to take an educated guess about what your retirement income will be. Use the same calculators or Financial Advisor to help you with this step. How much do you expect from:
-Social Security
-Pension plan
-401k, stocks, money market, annuities, etc.
-Your personal savings.
-Capital gains from the sale of your home.
-Savings on cost of living when downsizing to a small residence.
-All other potential streams of income.

How does the guesstimate for your cost of living and your educated guess for income potential line up? This is the information you need to be very aware of when you are deciding on how much to put away and save for your retirement.