What does “retirement” mean to you? When do you think it will become a desirable option? How much of a retirement fund or “nest egg” do you think you’ll need?
These are some of the questions that you should ponder well before you approach the time for a decision about leaving the workforce. There are at least two readiness tests that will help you consider why, how and when to retire.
1) Are you financially ready to retire? Do you have the resources necessary to support yourself and your family lifestyle?
2) Are you mentally ready to cross that line, to leave that productive life and enter the reductive phase of life?
There is a survey that can help you answer these questions for the present time of your career. It will help you decide if you’re ready and about when it will make sense to do so with a look at the mental and financial readiness of your situation. This is the link to the survey called the BERI (Business Exit Readiness Index) Report:
What happens if you decide the timing is not right? What if you don’t really have an interest in leaving the workforce? What does it mean to you to “finish well”? What if you’ve accumulated a sizeable “nest egg” but retirement isn’t really appealing to you?
These also are questions that may come up on your journey to “finishing well” regardless of how you define that. Fortunately, there are steps you can take to prepare yourself mentally and financially to approach the final quarter of your productive years and should you so decide, you can “retool” rather than “retire.”
There is a process that takes a measure of the uncertainty out of that decision. This process has the following steps:
1) Data taking involves gathering all pertinent financial data to determine where you are at present. The data includes financial assets and obligations, current budgetary expenditures and income, savings history, estimated taxes, retirement plan contributions and any other financial related data.
2) Goal setting is extremely important in terms of specific measurable, challenging, achievable goals with a specific time frame for completion. You need to stay in touch with your goals on a frequent and regular basis so they become real.
3) Plan how to reach your goals deliberately, routinely and consistently. Your plan should be based on the particulars of your personal situation. It also is age-based in that the older you are, the shorter the time you have to save, grow and accumulate your “nest egg.”
4) Tools you will need to consider using include:
- Savings accounts for immediate needs;
- Qualified retirement plans such as 401k, SEP IRA, Traditional IRA Plans;
- Non-qualified retirement plans such as SERPs, Deferred Comp Plans, Key Man coverage;
- Private investment account including stocks, bonds, mutual funds;
- Annuities and Cash Value Life Insurance.
- Income producing real estate can be used if your situation permits.
5) Social Security is today a valuable source of predictable income once you reach Full Retirement Age, currently 66 years old if you’re turning that age soon. This is a topic for another time unless you are 60 or more. If not, speak to a Certified Financial Planner who should be able to help you. There is talk that Social Security payments will likely be reduced by 25% in 2034 unless Congress acts to correct funding issues.
So, when do you begin this process? In your 30s is a recommended time to start. Twenty years ago would have been a better time to start accumulating, but today is the best time to start the process if you haven’t started yet.
Using the “Tools” mentioned earlier, begin to allocate a portion of your earnings. How much? As much as you can set aside without having to borrow. Debt is a “nest egg robber” unless you are buying something that will increase in value, such as real estate.
Take advantage of any matching program in a 401k plan, at least up to the percent of your income the company will match on a regular basis.
Begin to save in a separate account targeting 3-6 months of your monthly fixed expenses as an emergency fund.
The next step is developing a non-retirement investment account to be used to purchase mutual funds at first, with a combination of growth and fixed income funds. Then individual stocks may be a desirable addition once you have a well-established account of mutual funds.
An important point to make is to seek the advice of a Certified Financial Planner that can assist you in every aspect of accumulation mentioned in this article. Monitor your results with a little TLC and watch your “nest egg” grow to full size by retirement.
About the Author
Richard T. Harris has been associated with Sagemark Consulting since 1980 where he has developed a financial planning practice focusing on wealth accumulation and conservation and business succession planning issues and exit strategies. Throughout his 30 year career with Sagemark he has attained qualification for the company’s Chairman’s Council four times and President’s Cabinet twenty-eight times. His professional designations include: Chartered Life Underwriter, Chartered Financial Consultant and the CERTIFIED FINANCIAL PLANNER™ certification.
« Return to Newsletter