Photo: Wikimedia Commons
When it comes to planning for retirement, the questions you ask today have a huge impact on your future. That’s because your questions determine where your focus is. In my experience, people often overlook the most important questions and that can be really costly. In order to make sure that doesn’t happen to you, I’ve compiled the 7 crucial questions people have to ask themselves when planning their retirement:
1. Do I really ever want to retire?
Depending on what kind of work you do and your health, you may have no choice one day but to trade in your grindstone for a gold watch. But even if you can retire, you may not want to. And you may not have to. I have seen scores of people retire and over 60% go back to work doing something for which they get paid – because they want to.
According to the Cornell Retirement and Well-Being Study, 44% of us who officially retire, go back to work for some period of time. 89% of us want to stay active and an amazing 83% of baby boomers say they’ll work after retirement. Almost a third of us say we’ll work as long as our body will allow us to do so. Granted, the study was done 12 years ago but my experience tells me that more and more of us prefer to keep working if possible.
And just because you stay in the workforce doesn’t mean you’ll stay glued to the same desk. You might get sick of your profession or particular job. But odds are you won’t get sick of making a little money. That being the case, it may not be unreasonable to figure in some side income from work even after you retire.
2. How long will I live?
This is a tough question to answer of course. But in order to plan for retirement, you should assume you are going to live to be 90 years old at the very least. If you are 70 today, the guys with the sharp pencils in the big offices at the insurances companies figure you’ll make it to 84 if you are male and 87 if you are female. If you are younger than 70, your life expectancy is less.
I suggest you exaggerate your life expectancy just to play it safe. Most people under estimate the number of years they expect to live and as a result fall short. You don’t want to be 95 year old and have to work Flippy Burger do you? Plan to live a long time and you won’t have to worry about it.
3. How much income am I really going to have? How much will I spend after I retire?
It’s relatively easy to answer the first part of this question. Most people know what their future sources of retirement income are going to be. But not many people really understand what it’s going to cost them to live in retirement.
In fact, very few people know what it costs them to live today let alone what it will cost them 10,20 or 30 years down the road. Until you have a clear picture of your current cost of living there is no way you can do any serious kind of retirement planning. This is the reason you really need to track your current spending starting now.
4. Do I have the best asset mix for creating enough income?
Many people don’t have the best investment portfolio and as a result they have substandard income. They don’t really know how to squeeze all that tasty income from the portfolio that they really could.
Scores of people are sitting on a potential avalanche of income but they don’t realise it. They hold on to non-performing real estate and lack luster stocks for example. Then they lament their lack of income.
The best way to make sure you don’t make this mistake is to reevaluate every investment you currently own. If you wouldn’t buy it today, there is a good chance you shouldn’t hold it either.
5. How much will I be able to help my children?
You love your children. I get it. So do I. But when is enough…enough? Sure it’s harder for our kids than it was for us when we were younger. And if you can afford it, I’m a big fan of giving the youngsters a helping hand. Why not?
But keep in mind that you don’t want to give away so much that you become a burden to your children later on. Always maintain sufficient assets and income to protect yourself first. You must know how much you can afford to help your children and when to say “no”. The only way to do this is to run your own personal financial plan and update it frequently.
6. Do I need to make any changes now in order to increase the likelihood of retirement success?
Based on all the questions you asked up until now, what changes do you have to make now? Do you have to start tracking your spending? Run a mini-financial plan? Reallocate your investment portfolio? What changes are you going to have to implement? When are you going to start? How?
7. Am I willing to do what is necessary to better secure my retirement?
This is the most important question there is. What I’ve provided you with up until now is knowledge. But knowledge that isn’t applied is just about worthless. Make today the day you do yourself the greatest favour you possibly could. Make today the day you commit to identifying what needs to be changed and create an agenda so you know what you have to do and when you are going to do it. Share our plan with another human being and become accountable to her.
As you can see, the questions I’ve presented above aren’t mysterious. They are common sense considerations. But people don’t ask themselves these questions – I think because they are afraid of the answers.
Don’t let fear stop you from doing what you know you can do to vastly improve your financial future. You don’t need to hire anyone or buy any books to do most of this. You just need the commitment and willingness to get out of your comfort zone and do what it takes to create the future you want. Are you going to go for it? Starting when? What is your first step?