Key Takeaways

  • Knowing what you plan to do in retirement will help you calculate the savings you'll need.

  • Your retirement financial Plan A is based on planning for how to live on your savings for the rest of your life.

  • Your retirement financial Plan B is based on ways to boost your projected retirement income, lower your living costs, or mix the two.

The idea of retirement was very straightforward a generation ago: quit your job and start having fun. Today, though, retirement is more about entering a new stage of life that promises to be as fulfilling as or more so than the one that came before. And many people are making the switch before or after they turn 65. 

Your time will be your own to do whatever you choose to do in retirement. Undoubtedly, financial planning is a crucial aspect of retirement preparation. Visualizing your future is a step that is sometimes skipped but is vital. Knowing what you plan to do in retirement will help you calculate the savings you'll need.

 Retirement step 1: Do your homework

The first step is to do your homework on retirement. This assignment asks you to think about your plans for retirement, such as when you want to stop working. Making a budget for your retirement living expenses and a list of all your money is also part of the homework.

After you've done your homework, you're ready to make plans for your retirement money. Be aware that it might take a lot of time and work, but that's fine, given what's at stake.

Your retirement financial Plan A

Determining if your retirement income will be enough to cover the estimated living costs you came up with as part of your retirement planning is essential.

Determine how much money you can expect from Social Security when you retire at the age you want. If you have a spouse or partner, don't add their income. 

It's important to note that most experts say you must wait as long as possible to get Social Security benefits, but no longer than age 70. By waiting to take your Social Security benefits, you can protect more of your retirement income from inflation and stock market crashes.

So, if you want to delay getting your Social Security income after the age you want to retire, you'll need to devise a plan to make up for the money you won't be getting from Social Security.

The next step is determining how you'll use your savings to make money for the rest of your life. You have a few options, and each has good and bad points: 

  • Use some of your cash reserves for a Social Security bridge strategy, which is one way to get the most out of your Social Security benefits.
  • Invest your money and use a systematic withdrawal plan to regularly take a set amount from your savings. You could take out the principal, interest, and dividends or take the interest and dividends.
  • Consider purchasing an annuity that will generate a monthly income. That will give you some financial security. 

Your job is to determine each plan's pros and cons and then estimate how much money you can get from your retirement savings.

Lastly, if you are eligible for a conventional pension, you should compute how much you can earn monthly. Most pension plans have online calculators that can help determine how much you will get when you retire.

Now you're ready to add all the regular sources of retirement income you can count on. This will help you determine if you'll have enough money to cover your estimated living costs and still have enough left over for unexpected events. 

If your expected retirement income is enough to cover your expected living costs, you might feel like you can retire whenever you want. But if your income isn't enough to cover your projected living costs, you'll need to execute Plan B.

Your retirement financial Plan B

Plan B is to look into other ways to boost your projected retirement income, lower your living costs, or mix the two. 

Here are some possible strategies:

  • Delay your retirement age. This lets your savings grow with interest from investments and can make your Social Security check more extensive. If you don't retire until you're 65 and eligible for Medicare, you could save much money on health insurance by waiting until then.
  • Work part-time for a while to make more money. This is better than taking out payday loans to cover unforeseen expenses after retirement. You can pay off your payday loans with your retirement savings. Should you deplete your retirement savings to pay off high-interest debts?    
  • Cut down on your living costs. Most retirees' biggest living expense is their home, so moving to a less affordable place or house can significantly cut your living expenses. You could also consider getting a cheaper car or taking public transportation to save money on transportation costs.

If you have a lot of equity in your home, you could sell it, make a profit, and use the money to add to the part of your retirement savings that can help you make money in retirement. You could also use a reverse mortgage, giving you more money and helping you pay for your living costs.

For most people, these are the most important things they can do to balance their income with their living costs. There are other ways to improve your retirement savings, but you'll need to do a little more research on those. 

Looking toward your retirement future

It's an excellent decision to move on to more meticulous planning once you've finished making Plans A and B. This includes thinking about how you'll keep yourself safe when you're older and may need help with daily tasks. You'll need to figure out how you'll pay for the help you need, and you'll also want to take steps to protect your money from any mistakes you might make.

Make this comprehensive retirement planning a top priority if you haven't already. You'll be grateful for it, as will your family.