One of the first questions one should ask when beginning their retirement plan journey is “What kind of retirement do I want?”. The amount of your regular retirement paycheck will help determine that, but how do you know what to plan or dream for unless you consider all the factors that could impact your retirement. This is why it is imperative that one of the first steps for retirement planning is setting a retirement budget.
One important thing to consider when starting a retirement budget is making sure you and your spouse or significant other are on the same page about the plan. Anytime you have to make decisions about the future it can get complicated or difficult, but when both are honest and open the process can move forward.
Most people have grand retirement dreams but one of the first steps needs to be categorizing those dreams in to needs, wants, and wishes. As you start with your “needs”, consider what your monthly necessities will consist of. Will health changes during your retirement years require additional attention and funds? How will inflation over the full time of your retirement impact your savings and retirement paycheck? What about covering items such as life insurance that may have once been covered by an employer but after retirement is your responsibility? The point here is to consider not just what you have need for now, but what will be needed in the later years of your life.
Next begin considering your “wants” and “wishes”. Differentiating the two may seem like splitting hairs, but if you consider the categories as escalating, it is a little easier to figure out. Consider your “wants” like providing college education for your children or maybe budgeting for a daughter’s wedding expenses. Again, the “wants” category isn’t necessarily a “need” but it is certainly more concrete than a “wish”.
After you’ve established your retirement needs and wants, it’s time to dream a little with your “wishes”! Do you want to travel, or maybe buy that dream car? Do you want a vacation home or to give back to a philanthropic organization you are passionate about? It is fun to dream but remember to be realistic. “Wishes” that are realistically considered will have a higher likelihood of being achieved.
Once the “needs”, “wants” and “wishes” are determined, you can see a realistic idea of what kind of savings it will take to achieve such a budget. During this time, you will go back and forth to hone the budget based on current and future projected savings. You’ll answer questions like “At what age do you plan to retire?”. Based on the budget, you may find that you can retire early or maybe you’ll need to work a few more years to achieve the retirement you want. There will be more challenging considerations as well like, “How will retirement change if a spouse passes away earlier or later than expected?”. A well-planned retirement budget will consider that and much more to help you attempt to have a plan for as many scenarios as possible. All the while there is a balance between how you craft your retirement paycheck and how you live out your retirement budget. The goal is to avoid the 2 main fears that retirees deal with: the possibility of running out of funds or not living a fulfilled retirement when it was actually possible.
The earlier you begin working with a financial advisor to determine your retirement budget, the longer you will have to plan, save and adjust. Contact one of the financial advisors at Viewpoint Financial today to discuss starting your retirement budget.