After a lifetime of hard work, you want to enjoy a good retirement. You want to do more than just pay the bills and survive. If so, sound retirement planning is a necessity—not flying by the seat of your pants.
If there's any place where "just winging it" is a bad idea, it is retirement, says Kiplinger in its recent article “Americans Need to Stop Winging It with Their Retirements.”
Solid retirement planning is more sophisticated than just putting a few dollars into an individual retirement account or 401(k). Saving money is very important if you want to accomplish your retirement goals. However, if you want to keep as much as you can, saving money is just one part of a retirement plan.
If you are five to ten years away from retirement, consider these reminders to help you keep on track when working to meet your retirement goals:
Calculate if you'll have enough money to cover your expenses. Look at your income when you retire—like Social Security, pensions or rental income. Then calculate what your approximate monthly expenses will be. If you have more monthly expenses than monthly income, you’ll need to work to close that gap. Without enough income, there’s really no retirement.
Remember taxes and inflation. Unless your assets are in a Roth IRA, when you start withdrawing your money from other sources, there will be taxes. In addition, inflation can melt away some of your spending power. Take taxes and inflation into account.
Watch market volatility in your investment portfolio. As you get close to retirement, it's important to look at your risk tolerance when allocating your retirement assets. If you're younger, you can recover from a downturn in the market; however, if you're 60, you will have less time and more difficulty recovering from a major loss.
Create an estate plan. Way too many people don't have a thorough estate plan. Work with a qualified estate planning attorney to build in significant protection for the next generation. A properly created trust will help to avoid probate for the assets in that trust. Your attorney will have other strategies to help mitigate the estate taxes your beneficiaries might pay.
If you start thinking and planning well ahead of time, winging it won't be necessary.
Reference: Kiplinger (July 2016) “Americans Need to Stop Winging It with Their Retirements”