LOUISE FAIRSAVE: Retirement goals
As retirement gets near, the major part of preparing for retirement involves settling the goals and objectives of your retirement.
How will your lifestyle in retirement compare to your current lifestyle? What is your life expectancy? How is your health and what health problems are likely in the future?
The ultimate goal of your retirement plan is not to outlive your money and where at all possible, to leave at least an adequate legacy. That is a broad goal for everyone.
Here are five specific objectives for retirement that should be considered:
• Reduce/eliminate debt so that by retirement, the servicing of debt is not a call on your cash flow.
• Minimize recurring costs during retirement consistent with your retirement lifestyle.
• Generate adequate cash flow (income) to support your retirement lifestyle. Any excess cash flow can be invested toward rainy days or towards enhancing your legacy.
• Adequately balance the saving and investing (liquidity) in your established retirement fund; cash must be available for spending as needed.
• Making reasonable provision for inflation and contingencies which may relate to health care expense or retirement housing/care. This entails committing only to low- or moderate-risk investments.
It is never too late to start planning for retirement. The key is to start. For sure, the earlier you start, the better for you. The first step is to evaluate exactly where you are at the present time.
One way of assessing your retirement cash needs is to examine all your income and expenditures for a full year or two during the planning period.
Prepare a detailed cash flow by month of the source of all your income and the way cash is expended.
This is a tedious exercise yet exceedingly potent for retirement planning. With this spreadsheet in hand, review each income source and each expenditure, considering how each may change during retirement.
Typically, pension income is less than salary.
So, will there be other annuity income that will improve this short fall in income? Will there be additional interest income or dividend income?
Are there expenses that will come to an end by retirement (like mortgage and loan payments, support of children or their education costs)?
Are there some expenses that can be avoided (like extensive vacations, reducing socializing and entertainment costs, and reducing the cost of running your home and vehicle).
This is when decisions are made about cutbacks as well as doing without certain expenditures all together; retirees, more often than not, carefully examine the living landscape for freenesses and reduced costs for everything in their expense budget.
Once this review is done early enough, you will have some time to uncover what you need to work on most to get closer to your retirement goal.
A few people may find they are currently on target or even better. Some of us will find we need to do extraordinary work.
Alternately, we may be forced to revise our retirement goals and planned lifestyle in order to match what the projected retirement budget says we can afford.
• Louise Fairsave is a personal financial management advisor providing practical advice on money and estate matters. Her advice is general in nature; readers should seek counsel about their specific circumstances.