The following was taken from The Motley Fool's upcoming Rule Your Retirement Online Seminar, which walks you through these tasks step by step and provides further information about asset allocation as you near and enter retirement, leaving something for the kids, and creating a contingency plan to weather any storm. Class starts May 23.
The world of retirement planning is full of one-size-fits-all guidelines. As most people near their retirement, though, they find that the standard rules of thumb simply don't apply to them.
Are you counting on a comfortable pension from your life-long employer? Do you see yourself dramatically cutting back your entertainment and everyday expenses in retirement? Do you expect to pass on to the Great Beyond a mere decade after leaving the workforce?
We didn't think so.
No matter how much planning you have already done, it is important to make sure your retirement is based on your reality, not some cookie-cutter assumptions that don't apply to you. Take a look at the three most common myths factored into most people's plans.
I need 80% of my current income to live comfortably in retirement.
Sorry, but that rule of thumb will leave you a little short. It assumes that you've stuck with one employer your entire life and that your pension plan is as golden as the watch you got on your retirement day. And then there's the kicker: Even if you have Medicare coverage, health expenses consume nearly 20% of the income of retirees. Most retirees we talked to said that their early retirement years cost at least as much as, if not more than, their working years -- and we didn't even talk to the world travelers or scuba divers.
Retirement income comes from the "three-legged stool" of Social Security, savings, and pensions.
For all of you who forgot what a pension is, it's when your company continues to pay you after you retire. For most of us, savings and pensions have morphed into one mega-retirement-income category. And while we think Social Security will continue to be part of your retirement picture, there's no doubt that, if you're going to live the way you want, you'll need more. This is a long way of saying that you have more responsibility for harvesting that nest egg and most people are balancing on a two-legged stool of some kind.
Retirees should be 100% allocated in bonds and CDs.
Just because you're retired doesn't mean you automatically stop being an investor. Far from it, in fact. Your savings have to continue to grow with you -- even if you do seem to be shrinking about an inch a year. According to the Alliance for Aging Research, the average person is born with a set of genes that would allow them to live to 85 years of age and maybe longer (knock on wood). Throw in some jogging and healthy eating, and you can add another 10 years to that. So you may be talking about spending 30 years or more in retirement! Make sure your retirement budget is designed to last as long as you do.
If your plan is based on any of these assumptions, don't worry! Just because you're nearly retired (or already there) doesn't mean that you've run out of options. Whether your plan needs some tweaking (or maybe even an entire facelift), there are a number of resources that can help you regroup (or start from scratch).
For starters, we suggest that you re-examine your retirement costs, taking into account some of the obvious costs (like food, shelter, medical, housing, taxes) and the not-so-obvious (such as eldercare and fun, which includes travel and spoiling the grandkids), and more taxes. After the shock of tallying the expenses of retirement wears off, start accounting for all of your sources of retirement income. As you do this, don't panic! Seriously. Look into the pros and cons of various investing strategies from annuities to REITs to savings plans and then break down your shortfall into monthly savings additions.
Sound like an insurmountable task? It's not. Our Rule Your Retirement Online Seminar can help!