If you think that planning for retirement should only be done when you are near the age of retirement, think again. Especially in today’s uncertain economic situation, it’s always a good idea to start thinking about your retirement earlier – how you will fund your retirement and how much money you need for your retirement.
In retirement planning, the sooner you begin your planning the better; you simply can’t afford to bury yourself in money problems at your retirement age, don’t you think?
Okay – now you know that you need to plan early. The next question that might pop out of your mind is this: How much money do I need to invest for my retirement? Unfortunately, it’s always trivial to answer such question.
The typical answer would be: It depends. But to take that answer deeper, here it goes: It depends on what kind of plan you have.
How much you need for your retirement varies greatly, depending on your plan. Are you planning to travel a lot when you have retired? Are you planning to retire to the beach or vacation spot? Again, your plan will determine how much you will need to prepare.
If you plan to travel the world, you obviously need more to fund your retirement. But beyond your plan, there’s a more pressing issue you need to address when preparing for your retirement: How to support your day-to-day living needs.
Here are some items you need to consider when planning for self-supporting your daily expenses.
1. Will you still have any debt payments due when you retire?
Your debts – such as mortgage – will mature years from now. Be sure you take those debt payments into account when calculating the amount you need for retirement.
2. Utility, insurance, groceries expense
Don’t forget calculating the cost of utilities and your auto and home insurance; also, don’t forget to calculate the groceries spending – they are potentially under-budgeted and can pose a threat to your overall budget.
When you are approaching retirement age, you are not getting any younger (unless you stumble upon a fountain of youth!) It’s only natural that as we grow older, our healthcare needs also increase accordingly. The bottom line, you may spend more on healthcare than before. Be sure to prepare enough room for any unexpected expenses, such as medication. You don’t want to get sick and have no money to find cure!
4. Don’t forget your parents and kids!
It’s very much possible that when you are retiring, you still have parents to support. Also, don’t forget your kids’ educational expenses.
5. Watch out: Miscellaneous costs
And this is perhaps the most important one: Watch out for your uncategorized or miscellaneous expenses – whenever possible, you should categorize them, as they can be a big ‘black hole’ that will suck your money to the amount that will surprise you. Home repair costs, etc. can cost you a lot.
Don’t forget the inflation – people tend to forget adding inflation to your retirement budget. In relation to that, be sure you plan enough for your retirement. People often underestimate how long they will live – so the best rule of thumb for you is to plan with an assumption that you will live at least to the age of 90.
The best thing you can do for your retirement planning (that many don’t do) is budget, budget and budget. If you can do it properly, you can very much enjoy your retirement age.
So, start planning (and budgeting) TODAY!