People start thinking in more concrete terms about retirement when the concept becomes a reality, often about ten years out. That’s when the planning has to get real.
Both football and retirement planning have a “red zone,” where the game is won or lost, says Investopedia in a recent article, “5 Things to Do 10 Years from Retirement.” For NFL teams, the red zone is 20 yards from the goal line, and in retirement, the red zone starts ten years from your targeted retirement date. If you’re approaching the retirement red zone, it’s time to huddle up!
- Figure Out What Retirement Means to You. Before you start making financial plans, be clear on what retirement means to you. It may mean working 40 hours instead of 60 or never working another day for the rest of your life. Whatever you like, it's important to have some idea of what you want to do every day. From there, you can start to shape a financial plan to support your retirement vision.
- Determine How Much Money You’ll Spend Every Month. Once you've defined what your retirement will look like, you can begin planning for it financially. First, determine how much you'll be spending every month on your retirement budget. Many pre-retirees just don’t know how much they need to live on a monthly basis. An accurate retirement plan will be based on your monthly household expenses.
- Examine Your Sources of Income in Retirement. While looking at your spending, be aware of all the types of income you'll have during retirement, such as Social Security, a pension, a 401(k) or an IRA. There are choices that will have to be made, if you have a pension. The timing for collecting Social Security payments is also important.
- Rework Your Investment Strategy. The way you’ve been investing for the past 30 years, is not how you should invest for the next 30. Younger people focus on accumulation, but when you’re in or nearing retirement, you need to concentrate on income and keeping pace with inflation. Diversification is important, but what's more powerful than diversification is asset allocation.
- Consider Hiring a Financial Professional. You can do-it-yourself, since there are many inexpensive funds and research information available. However, there's much more that goes into creating a comprehensive retirement plan than just investments. Your retirement plan should address your need for income, estate planning, survivorship planning, insurance needs, business continuation, inflation, and other points.
To continue the analogy, retirement success in the red zone means good planning, including having an estate plan in place. If you fumble the ball at this point, your retirement won’t be celebrated with a Gatorade shower. Start planning now, so you can enjoy the victory.
Reference: Investopedia (September 7, 2018) “5 Things to Do 10 Years from Retirement”