Almost half of affluent baby boomers have never discussed their needs for retirement with a financial advisor. The estimated 10.5 million baby boomers moving towards retirement comprise 45 percent of all affluent households.
Thirty-six percent of older baby boomers, age 50-59, with an average net worth (not including primary residence) of $1.7 million plan to retire in the next 6-10 years and 28 percent plan to retire in less than 5 years. Of those planning to retire, 62 percent do not have a written financial plan for retirement.
Furthermore, the vast majority of younger affluent boomers, age 41-49, with an average net worth of over $900,000, who have a longer retirement horizon of between 6-15 years, have no written financial plan for retirement.
Planning for retirement should begin as early as possible in your life, but with some careful thought, however, the planning process can be started at any time in your work career. The secret is to actually put together a plan no matter what your age. The following tips will help you get started on planning your retirement:
1. Review your finances
If you know where you are, you can prepare for where you are going. If you are deep in debt, chances are you are not prepared for your eventual retirement. No matter what your age, you should be putting something back for your retirement. It’s estimated you will need between 70% and 90% of your current income to maintain the same standard of living after retirement.
2. Review your retirement needs or goals
What is your idea of retirement? For some, it’s sitting on the porch and watching the grandkids play. For others it’s traveling. For still others, it’s somewhere in between. What are your retirement needs or goals? Knowing what you plan to do can give you some idea of what you will need in the way of money and health.
3. Develop a healthy lifestyle
When you retire, you no doubt want to be healthy so you can enjoy every minute. Now might be the time to lose the extra fat, start an exercise program, or quit smoking. Frugal saving and living habits to prepare for retirement won’t mean a thing if you don’t feel like getting out of bed once you retire.
4. Talk to your HR representative about your employer’s retirement plan
If your employer provides a pension or other retirement plan, ask for a summary plan description and ask for an explanation of the plan. Find out what you can contribute and if your employer provides matching funds. Also ask about vesting.
5. Talk to your spouse about his/her retirement plan
If you are married, you should discuss your spouse’s retirement plan to find out what benefits you might be entitled to receive. You should thoroughly understand any consent forms or waivers that you might be asked to sign for your spouse’s retirement plan distributions.
6. Review your benefit statement
Your employer should provide an Individual Benefit Statement periodically. This benefit statement shows your total plan benefits along with the amount that is owned by you. You should thoroughly review this statement and if there are areas that you don’t understand or disagree with, you should talk to your benefits administrator immediately.
7. Open an IRA
Almost all Americans can open an IRA if they or their spouse has earned income. An IRA can be either a traditional IRA or a Roth. You bank or other financial institution can tell you whether you are eligible to open an IRA and help you with the process. Once you open an IRA, you should contribute the maximum allowed each year.
8. Review your Social Security Statement
Each year, you should receive a Social Security Statement about three months before your birthday. This is a record of your earnings that have had Social Security taxes paid. It also has an estimate of the benefits you or your family might receive from those earnings.
9. Discuss your retirement goals with your spouse and family
This is especially important if you are near retirement age. Your spouse might have different retirement goals and you will need to come to some sort of compromise. Your family should be aware of long range plans that might affect them.
10. Think about how you will spend your time
Nothing is more frustrating than to have time on your hands and nothing to do. Once you retire, you might want to take another job, volunteer, travel, enjoy a hobby, and so on. Take some time to think about what you might want to do before you wake up that first morning and don’t have to go to work.
11. Evaluate your life insurance
You may or may not need life insurance but it’s a good idea to do your homework to determine its benefits. This is especially true if you have a family who would be left with no means of income or huge debts if you were to die. A life insurance policy can also be used to pay the taxes on inherited IRAs or other retirement funds in your estate.
12. Determine if you need long term care insurance
No one likes to think about being in a nursing home or needing special care but as we get older, this is a possibility. A major illness could wipe out your retirement savings.
While these 12 suggestions on how to prepare for retirement won’t guarantee that you will be ready for the big “R”, they will give you some ideas on how you can prepare. By planning for your retirement, you will at least be ready for this time of your life.