As we approach retirement, it’s apparent that there will be great changes in our lives — we’ll be transitioning from a working routine to a more open-ended routine, we’ll have more time for leisure activities, and we’ll also have to adjust to new financial arrangements. However, many of these changes won’t occur automatically — we’ll have to prepare for them. But how can we prepare? What is retirement planning?
The most fundamental aspect of retirement planning is financial: how will we pay for retirement? Where will our income derive from? The earlier we get started with this aspect of our retirement planning, the more options we’ll have for funding our retirement. Most places of employment offer at least some means of ensuring retirement income for employees, whether through a traditional defined-benefit pension plan or through a defined-contribution plan such as a 401(k). In the former case, employees contribute a certain amount of their income every pay period toward the company’s retirement fund, and upon retirement that employee receives a monthly pension payment that remains constant for the lifetime of the retired employee. With a 401(k), however, the employee is responsible for managing his or her own contributions to an individual retirement account, which, upon retirement, may vary in size, depending on how much the employee contributed and how the retirement funds were invested.
When you begin planning for retirement, examine your company’s plan carefully and determine how much income from the plan you can anticipate on retirement. If your company offers a 401(k), be sure to contribute the maximum amount you can, particularly if the company offers matching contributions.
Depending on your situation, you may have other sources of retirement income. Most Americans will become eligible for Social Security benefits when they reach full retirement age, although, for most people, Social Security income will be insufficient to provide a comfortable retirement lifestyle. If you calculate that your company pension or income from a 401(k), together with Social Security, will still be inadequate to meet your needs, then you’ll need to plan for additional income, either by saving more money in nonretirement accounts, by continuing to work at least part-time in your retirement, or by other means.
Don’t neglect this aspect of retirement planning! You don’t want to find yourself short of income with little opportunity to bolster your savings. The earlier you get started in planning for retirement income, the more time you’ll have to ensure that you’ll have enough.
Retirement planning also encompasses how you envision you’ll spend your time. You’ll wake up one morning and won’t have an office or job site to go to; you’ll have your time to yourself. For some retirees, this comes as a shock; they don’t know how they’ll spend their time. And as people live longer and are healthier in their advanced years, you’re still likely to have plenty of energy and drive. Give some thought about what you want to do in your retirement, and how you’ll continue to find fulfillment in your life. Be flexible — one’s aspirations and interests change over time — but at the same time have some firm ideas.
And you’ll need to live somewhere. If your dream is to simply stay put in retirement, then your living arrangements will require very little planning. However, most retirees these days move to another location, whether simply downsizing to smaller quarters in the same community or moving to an entirely new home across the country or overseas. If you’re hoping for a big move, then you’ll have to plan for it — including spending considerable time in your prospective new community before making a firm commitment, to ensure that you’ll like it there.
There are many aspects to retirement planning. While you may not have to map out every day in advance, give at least some thought about how you envision your retirement, and make concrete plans well in advance with respect to retirement income. Once your plan is in place, you can enjoy the full benefits of your retirement years.