16 weeks to plan the rest of your life
(MoneyWatch) When you begin planning for retirement, it's understandable to feel confused and overwhelmed; it might even be hard to know where to start. There's a lot to learn, and you'll need to make many important decisions that have a critical impact on your future. And given the challenges we face regarding our retirement years, it makes sense that you'll need to devote some time and effort to figure out how you will survive -- even thrive -- in the years to come.
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To help you with this important task, I'm re-introducing a series of posts, starting next Monday, that will guide you through the planning process. I published the original series two years ago, and it ran for 12 weeks. Since then, I've gained valuable insights by reading new research and learning about new products and services that have been introduced since my prior series. I'll add these insights to this series, which means my updated series will run for 16 weeks.
Each week, I'll describe a few steps you should take during the week. The focus will be on actions that affect your financial security, although some will involve your health and lifestyle, since these topics are all related. The goal is to help you answer important questions such as:
- How much retirement income will you have?
- What might be your standard of living in retirement?
- Will you need to work during your retirement years?
- What steps should you take to protect yourself against common retirement risks, such as outliving your money, high bills for medical or long-term care expenses, investment losses, and the death of a spouse?
- And ultimately, when can you retire?
The overall goal for retirement is to develop reliable sources of income that cover your living expenses for a good life, no matter how long you live and no matter what happens in the economy. If you're married, this income needs to last while either you or your spouse is alive.
To give you a preview of what's coming up, here's a brief look at the steps I'll be outlining each week:
Week 1: Estimate how long you might live. It can be insightful and inspiring to see how long you might live; hopefully this should convince you that it's well worth your time to spend 16 weeks to plan how you can best live the rest of your life.
Week 2: Think about the rest of your life. Start by answering the who-what-when-where-why of retirement. That will set the foundation for answering the most important question -- how? -- which is the subject of the entire series. Pick a few dates in the future when you might want to retire; you'll use these target retirement dates in the weeks to come to see if they are feasible.
Week 3: Determine if you need professional advice with respect to financial, investment, legal, and/or health issues, and identify who will be on your professional team. You might need assistance from experts in the weeks to come with some of the planning steps. Make sure your advisors are well-qualified and have your best interests at heart.
Week 4: Take steps to improve your health to reduce the odds of debilitating and expensive medical conditions, to enhance your enjoyment of life, and to potentially lengthen your life.
Week 5: Take inventory of the financial and non-financial resources that you have for retirement. Organize your paperwork and online files regarding all your retirement resources, such as 401(k) accounts, insurance and statements regarding pensions and Social Security. You'll use this information in future weeks to help you determine just how much more you need and what you'll have to do to get it. And don't overlook social and family resources that will impact your retirement years.
Week 6: Investigate how you might continue working during the first part of your retirement years. There's a good chance you might need the extra income, but there are benefits to your health and sense of purpose as well.
Weeks 7 and 8: Learn about the retirement income you can expect from Social Security, in particular for your target retirement dates. This is the first part of the total retirement income that you'll develop. I'm taking two weeks to cover Social Security, first for individuals and then to add considerations for spousal benefits.
Week 9: Learn about the various ways to generate retirement income from your IRAs, 401(k)s and other retirement savings. You'll estimate how much income you might receive using various methods for your target retirement dates, and then add these amounts to the estimates of your Social Security income from weeks 7 and 8.
Week 10: Determine an investment strategy that's appropriate for your circumstances, including how you'll use your retirement savings to generate retirement income, as discussed in week 9. You'll also consider your vulnerability to investment losses and determine which financial institutions or products and services you'll use.
Week 11: Start an inventory of your living expenses, and determine how they might change in retirement. In this stage, you'll begin to prepare a retirement budget. You won't be able to finish this step until you complete some of the steps coming up in future weeks.
Week 12: Decide how to manage your housing costs. Will you need to tap your existing home's equity, and, if yes, how and when?
Week 13: Determine how you'll protect against the threat of high medical expenses. In this step, we'll look at medical insurance, and you'll prepare a budget for medical premiums and out-of-pocket medical expenses. You'll add these amounts to the retiree budget you started in week 11.
Week 14: Develop a strategy for addressing the threat of high bills for long-term care expenses. You'll factor the estimated amounts into the retirement budget you started in week 11.
Weeks 15 and 16: Estimate your total retirement income so you can determine if it will cover your estimated retirement living expenses. This will help you decide when you can retire or if you'll need to work in your retirement years.
As you can see, there are many steps to complete in order to properly prepare for retirement. You can't do everything at once -- that's the reason for making steady progress over the course of a few months. Also, it's entirely understandable that you might take more than one week to complete the steps I'll outline for a particular week. Don't worry -- the posts will still be here when you're ready.
You may need to revisit some of these steps, particularly if you get to Weeks 15 and 16 and see that your estimated income doesn't cover your expected expenses. In this case, you may want to revisit your budget for living expenses or change your mind about working during your retirement years. You may even need to revisit your target retirement dates. In addition, your circumstances might change, which means you'll need to revisit some steps. That's expected -- life happens!
I'd like to make one important suggestion regarding these steps: Be sure to include your spouse, partner, and important family or friends in the discussion and planning. In fact, it may help if you have a small group of like-minded people who study the steps together and can provide each other with support or divvy up some of the tasks.
This may seem like a lot of effort and time, but 16 weeks of research and planning isn't a high price to pay considering that you're planning the rest of your life! If all goes well, you could be planning for a period of 30 years or more.
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