Six Considerations When Planning For Retirement -Part2

…Continued from Six Considerations When Planning For Retirement (Part 1)

So far, we’ve covered three considerations for retirement planning:

1. Age/Life Expectancy
2. Investment Risk
3. Distribution Size

Each one of these risks is tied to a single concern: Not running out of saved funds.

One idea which is becoming more and more common is the idea of a reverse mortage. For those people who are retired and have homes that are already paid for, this is often an idea which can make their meager retirement savings last longer. However, personally, I would prefer to avoid such a vehicle by planning for the first three factors now, while I am young enough so that I am not forced into something later on and I can choose how and when I want to use my home later on.

When you consider that the first three considerations are about the retirement savings (i.e. the income side of the equation), it should be obvious that the other considerations deal with the spending habits in retirement (i.e. the expense side of the equation).

4. Personal Property:

Is the mortgage paid off? Does the car still have a loan? Expenses like these are items that must be considered when going into retirement. Unless you retire very late, it is probably unwise to consider liquidating personal property in the form of a house as a means to fund retirement. In the situation where you outlive the money, you will become homeless and broke.

Therefore, considering monthly payments/obligations is a must:
Are there any standing “rentals”, home-owner-association fees, “country-club” fees etc that you will have to pay upon retirement. Propery, Excise, and yearly taxes/bills like water/sewer are also easy to forget. Payments that cannot be avoided or paid off for life early, must be included in your calculations. Otherwise, you will be left with very little discretionary income.

5. Insurance:

Is your home insured? What about your car? Do you have significant life insurance and long-term-care insurance policies to cover unexpected medical costs. Medical and Insurance costs will continue and even go up, regardless of whether or not you retire. So don’t plan on retirement freezing the costs of living. In fact, older, retired people often have even more expenses of this nature than average workers. Don’t underestimate these costs.

6. Lifestyle:

How do you plan to live when you retire? Do you plan to save any of your distributions as emergency money? Simple questions about lifestyle can make a big difference when considering what the potential retirement situation will be.

Your lifestyle may include some kind of work either for necessity or enjoyment. What ever your plan is, it will likely need to be reviewed every year to ensure that you are on track. Changes are much easier to manage if they are considered on a regular basis and planned for. Retirement planning is no exception.