What To Do About Retirement Stress
On Monday, I wrote about the retirement stress many people face. I then gave you five different pieces of information that, if you knew, might just make that stress go away for good.
It is fear of the unknown. Once you know that, you can develop some kind of plan to gain a level of confidence in the future. Keep in mind it might not be the ideal plan you originally had in mind. However, it is a plan. Here is what you need to know with a little more detail.
1. Age at retirement
You might think this is an obvious date. Yet, oftentimes, people get hung up on this future age. Remember, like the other four pieces of information, you can change this number for as many retirement scenarios as you would like.
2. Your anticipated expenses each month.
This number will take a little time. You start off pretending that you are 20 or 30 years in the future, and tomorrow starts day 1 of your retirement. What will the next 30 days cost for you to live? You have to determine if you will have debt or if it will be paid off. What kind of expense will healthcare create? What are your annual costs? You would have to divide those expenses into 12 months. Remember, start with estimates and massage those numbers as you go.
The key to this game of pretend is two-fold. First, don't get hung up on inflation. Second, don't worry about taxes. Leave these two items to a skilled financial advisor who can plug your items into a software program and start putting everything together to form a plan that includes an inflation and tax rate.
3. How long or how many years of life will your plan fund?
You have to determine how long of a life you want to plan for. Don't know? Then try this! Consider the longevity of your parents, grandparents, aunts, uncles, etc. You can even get those ages and figure up an average. The standard age for most plans is 85.
4. Total retirement dollars saved in your retirement accounts, along with annual savings going forward
You have to start somewhere. You might not be happy where you are in your savings for retirement. You are where you are now - take and improve on it. Any progress is progress. You would be surprised how much progress you can make in a short period of time.
5. How much risk you are willing to take?
This is so very important. You have to identify your risk level to estimate the growth rate during your retirement. For example, say your plan works with an average rate of 6% annually. Then, have your advisor dictate what to expect risk-wise going forward if you attempt to capture 6% on average with your investments. Let's say you wanted to shoot for 10% a year. Are you comfortable with potential big losses along the way? Remember, your risk level will determine how quickly or slowly you will be able to reach your goals.
Bottom Line - There is a tendency to get discouraged when you look at where you are and where you need to be. Just keep in mind somewhere in those numbers are five pieces of information you need to start the process over with a fresh new list of goals! There is a plan for everyone. You just have to look for it.
Check out Bob's teaching videos at www.youtube.com/user/prudentmoney to learn more about intentional financial stewardship.