If you've started thinking about retirement and you don't know where to begin planning, you aren't alone. These days, many Americans are uncertain about their financial future as a result of false impressions or a lack of confidence. Planning mistakes have been made, family financial obligations are demanding, and mortgages are draining. So where do you begin?
To start, consider the following three questions. Your answers will help you get on track to creating a "plan of a lifetime."
When do you want to "hang up your cleats?" I often ask my clients this question and many say "tomorrow," but only jokingly. This is an important question because it will help you develop concrete plans for your future.
Now let me change your thinking a little. Many people believe that retirement means leaving your employer permanently. For some, that may be the case, but for others it may be impossible. They simply cannot afford it. I've often advised clients to look at retirement as a lifestyle alteration rather than a "pull the carpet out from you" life change.
You may not need to leave your job completely, but rather simply relinquish some of the responsibility and hours. Frequently, employers do not want to lose their best workers and are willing to make some adjustments to your schedule in order to continue utilizing your knowledge and experience. Remember, employers would rather accommodate your wishes than search for your replacement.
Think about working part time instead of making a clean and complete break.
How much money will you need? It's funny how it all comes down to money, but it really does. Do you have enough income and assets to retire? That simply requires a few calculations you can easily do with a retirement calculator or by meeting with a financial planner.
Often, I meet with an aspiring retiree that thinks he or she will be ready to retire when they get to the magic number, $1 million. These rules of thumb are extremely outdated, but people still use them.
Here is the blunt truth. From your retirement savings, you should only expect to take out 4 to 5 percent per year for your income. This calculation assumes that you will be able to increase that amount each year based on (moderate) inflation.
That means for every million dollars of retirement assets, you should expect to withdraw $40,000 to $50,000 per year. To many aspiring retirees, this figure does not sound like enough and it probably isn't. Make sure you think of all your retirement resources, including pensions, Social Security, other income, and income from your assets to be sure you will have enough each year.
What are you passionate about? Are you retiring "to" something or "from" something? In other words, are you leaving your employer because you no longer care for the work environment, or have you genuinely put thought into what retirement will look like and made plans to pursue the passions that you didn't have time for?
I often ask new clients if there is something that they've wanted to do for many years but as life got in the way, completely forgot about. It usually takes some thought, but once they truly think about it, I hear things like "I always wanted to travel to China," or "I want to open my own business," or even "Go back to school."
I wrote about a couple in my book who were asked that same question, and their responses were startling. The wife first told me that she really did not like spending the winters in Virginia because of the ice and snow. She said she always wanted to spend the cold months in Florida. Her husband never knew this. When I asked about his forgotten passions, he blurted out: "I always wanted to sky dive!" His wife was flabbergasted. They had been married for more than 50 years but never had these conversations.
The outcome is what makes retirement planning fun. The aforementioned couple now spends each winter in the Caribbean and the husband has gone sky diving twice. That's not a return on investment; that's a '"return on life."
If you take some time out of your busy schedule to ask and answer these three important questions, you are not only guaranteed some incredible breakthroughs, but also the foundation of a retirement planning roadmap that will help you achieve the retirement of a lifetime.
Kelly Campbell, Certified Financial Planner and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, A Registered Investment Advisor in Fairfax, Va. Campbell is also the author of Fire Your Broker, a controversial look at the broker industry written as an empathetic response to the trials and tribulations that many investors have faced as the stock market cratered and their advisors abandoned their responsibilities to help them weather the storm.