Retirement Planning for Dummies
Do you have a retirement plan yet? I don’t mean how much you have saved, or what your investment portfolio looks like, I mean a real plan. Do you know what your expenses will be? Where will the money come from, Social Security, retirement savings, other income? When can you afford to retire? If you haven’t started a plan your not alone.
Your lifestyle in retirement will depend on how much you need in retirement to fund that lifestyle. Will you have enough? Will it last long enough?
Create your plan
This article is intended to only get you to started by creating the first step of a retirement plan. You can start looking at how you can make adjustment to your current budget to help you save more towards you retirement. Later you can seek out a financial planner to help you build a complete plan. Make sure you review your plan at least yearly, and make adjustments as required. If you are married or have a partner do this together, make sure your on the same page.
A plan has several components, how you will live in retirement your lifestyle. How much you will need to fund your retirement. How to invest to continue to fund your retirement, and what percent to draw down your retirement funds so you won’t run out of money.
Get started
Lets take the first step and start by determining how much you will need (ballpark) based on your current lifestyle to fund you basic needs. When I say basic, I mean just that. You can add in other lifestyle expenses once you have calculated the basics, and determined how you will provide funding for this level. Most of your monthly expenses will come from the following areas.
Calculate your basic living expenses
- Housing
- Mortgage, Taxes, Flood and Homeowners insurance
- Transportation
- Including lease, car payments, repairs and gas
- Food
- What you spend on eating in, including take out
- Utilities
- Cable, cell, electric, water, internet, etc.
- Insurance
- Medical, auto, umbrella, life, etc.
Go ahead and estimate how much you spend on each of the major categories, try to be as accurate as possible. Now multiple this by 12, this is what you need for you basic level of living expenses or security.
Calculate your income
Now that you have your basic expenses calculated, find out what income will be receiving in from social security. Go online to find out monthly social security income.
http://www.socialsecurity.gov/ This allow you to plug in different numbers based on the age you intend on drawing social security.
Determine your income needs
Now that you have your expenses minus your social security income, you will have the amount you will need to make up to cover your expenses in retirement. If you have enough saved, you will be able to cover this with your retirement savings, providing the percent draw is a reasonable amount say < 4%. Save more starting now
If you don’t think you will have enough saving, look for ways to save more, now and invest the savings. For saving ideas click here.
Important Retirement Dates
50 – you can contribute more to your 401k and IRAs limits are 23k and 5.5k.
55 – If you leave your job, you can start drawing from your 401k with no penalties (some restrictions apply).
59.5 – If can start drawing from you 401k and IRAs no penalties, no restrictions.
62 – You can start taking Social Security Benefits.
65 – You can sign up for Medicare benefits
66-67 – You can receive full Social Security benefits at one of these ages depending when you were born.
70 – You can receive maximum Social Security benefits if you wait till this age.
70.5 – You must start taking withdraws from you 401k, and IRAs.