You're staring out of your office window, daydreaming again. You are thinking about the day you finally have the house paid off. Your children are off successfully living their own lives. You can finally stop getting up at 5 in the morning to join the rat race. You're thinking about the day you finally retire.
You sigh and get back to work because you have some years to go yet. This isn't a bad thing. These are years you can spend planning properly for your retirement so that when you get there, you can spend those years in relative ease and comfort.
Here are 7 things you should consider when planning for those golden years sipping on pina coladas in the sun.
1.Get financial advice
You won't miraculously know what to do when you start on your retirement planning journey. This is why getting some advice from someone for whom it is an area of expertise is smart.
You can consult with a financial planner or adviser. There are several available who can give you valuable advice, such as explaining the benefits of life insurance in retirement planning. Most people don't know that a life insurance policy can provide them and their families with income, while they are still alive.
This is just one of the things you can learn if you consult with a financial adviser before you start retirement planning. Imagine what else you may learn that will work to your advantage.
2.Work out how much time you have before retirement
It is never too late to start retirement planning. That being said, the earlier you start, the greater the amount of time you have to accumulate retirement funds. Similarly, if you want to retire earlier, you'll have to accumulate more as your time to save towards retirement will be shorter.
How much time you have before your retirement will determine how much risk you can take with your retirement investments. Why investments? Because you don't want to be saving only cash toward your retirement. Instead, you'll want your money in high interest-bearing accounts earning you even more money towards your retirement.
Time before retirement isn't the only important consideration. You have to plan for the possibility that you will live for a long time after you retire.
Experts indicate that life expectancy for men is 84 and 87 for women. This is an average of 15-20 years to live if you retire at 65. However, financial advisers say you plan as though you will live for 25 years after retirement. That's 90 years old.
3. Take the cost of living into account
People often forget to take into account two things when planning for retirement: what is their current budget and what is likely to be the projected cost of living by the time they are ready to retire.
This is why you can't just save for your retirement in cash as mentioned above. Inflation will reduce the value of your savings and your cash will purchase less over time. You don't want to find that you've undersaved for retirement at a time in your life when you're likely to be facing medical expenses.
You also want to be able to cover your regular expenses such as groceries, utilities, and entertainment. A good rule of thumb would be to make a list of your current expenses, minus any expenses you'll not be paid after retirement, and then apply 3 to 4 percent to the total figure to represent inflation.
4.What will be your source of income after retirement
You must also think about what you will do for money after you retire. Most countries have governments that provide some kind of pension after reaching the mandated national retirement age. Unfortunately, this may not be enough to preserve your lifestyle after you stop working.
Are there other accounts you plan to draw down on when you retire? For example, some people supplement their pension income with payments from annuities. Some also choose to continue working part-time, if health allows. Do you have sources of intellectual property that will pay royalties that you can use as income? When planning for retirement, factoring that you will no longer have a monthly salary coming in is important.
5. How will you diversify your retirement income portfolio
Your financial planner will most likely give you the advice that you should diversify your retirement investment portfolio. Diversification means that all of your investments that will be providing your retirement income should not be of one kind.
A diversified retirement portfolio therefore will have stocks, bonds, mutual funds, maybe even some real estate. The idea is to spread your risk. If one of your investments performs badly, you don't lose everything.
Generally, when you are younger, you can take on more risk and can make more volatile investments. As you age, your investments should become more conservative.
6.Pay off debt
This is an important one. After retirement, ideally, you don't want to be paying off large debts. Try to pay off your mortgage, as well as any loans you might have taken for your children's education. Do not take any loans close to retirement or after if you can avoid it.
Remember your income is going to be reduced. You do not want to be struggling to pay off loans when you won't be drawing a salary.
7.Start estate planning
Most people are put off by planning what happens to their assets after they die. Many find it morbid and try to put it off as long as possible. If you want your loved ones to enjoy the same standard of living they had when you were alive though, it is absolutely necessary.
Just as life insurance can be an asset when you're alive, it can benefit your family when you die. It can pay off any remaining bills you may have left.
You should also set up a will that will properly dispose of your assets. This will be a reflection of your wishes and will help reduce conflict among the family members you leave behind.
Before dreaming of those drinks on the beach, understand that you're not going to get there without planning for it. Take the first steps with these 7 things to consider for your retirement planning.
WRITTEN BYSerena K. Johnson