The Retirement Corporation of America


PLANNING FOR RETIREMENT is more important today than ever before. There are more challenges than your parents or grandparents faced—starting with the probability you will live a long life and spend many years in retirement. The essence of planning is finding the money to pay for that long retirement.

If retirement planning poses more challenges today, there are more compensations as well. One of the most important is your ability to save huge amounts for retirement in plans that shelter your money from taxation until you begin withdrawing it.

Another compensation in retirement planning today is that attitudes toward post-retirement work have changed. It is likely that if you want to work after retirement, you will be able to—either with your present employer, or doing something different. The ability to earn an income in retirement should ease the burden of financing the longer retirement that you can expect.

By choosing a post-retirement career, you will also save yourself the shock of working full time one day and suddenly having to deal with retirement the next. If you established yourself as an invaluable member of your company, there is a good chance that you will be asked to return as a consultant after your "official retirement." Even though this might be a part-time position, you can demand lucrative fees. You can also take time to enjoy some of the activities you couldn't during your full-time career.

No two people, or couples, experience the same things. Still, there are rhythms that are common to most retirements. Your retirement most likely will move from one phase to another over the years—and you need to know what to expect along the way.

The first year or two of retirement is called "The Honeymoon Phase." This is a time when you get to relax or enjoy hobbies and travel. Retirement seems like a well-deserved reward. These activities might lead to "The Years of Financial Stress," during which you realize that you are spending a little more than you thought you would, and your nest egg is dwindling. This will be a time to fine-tune your retirement budget. In "The Later Years," you might have to deal with health issues, or cut back on your active lifestyle a bit. "The Years of Double Retirement" cover retirement time for you and your spouse. You both will have to adjust to your new roles and your continuing life together in this phase.

Planning for retirement is simply a matter of setting realistic goals for the future—how much you think you'll spend in retirement, and how big of a nest egg you can reasonably expect to have when you do quit working full time.

You can set all the goals you want. Unless you build up a retirement savings nest egg that is big enough to fund those goals, you'll never have the "good life" retirement you have been planning for. This lesson helps you keep a running tally of how your assets are building up. That way, you can keep making adjustments to your retirement plan along the way.

The best time to start planning for retirement is the day you start working at your first job. Not many people accomplish that. And there are tricks for jump-starting your retirement savings if you were slow in getting started. But the earlier you start planning for a good-life retirement, the more likely you will experience the retirement you want.

To better chart your retirement planning, you should keep a running tally of your employment/household income every year without exception. Also track your liquid assets, such as your bank accounts and CDs. You should be up to date on all mortgage, car, boat, and credit card payments to keep out of debt as well. Finally, you should track all your investments, including 401(k) plans, stocks, and real estate. They will provide the foundation for your retirement.

You don't make a retirement plan once and then stop. Goals change. Rules change. Investment opportunities come and go. The secret of having a good retirement is to start your planning when you are young, and keep adjusting and fine-tuning that plan right past your retirement date until you reach extreme old age. The need to keep constant watch on your retirement plans, even after you have technically retired, is the reason that this lesson is titled, Retire One Day At a Time.

You can break up your retirement planning into stages. There's a different setof planning steps to take, and a different set of potential risks, at each stage of your adult life. This lesson walked you through the six life stages, with appropriate advice for each stage.

In Stage #1, The Starting-Out Years, you will make your first financial plans for retirement, and begin investing wisely. In Stage #2, The Setting-Up Years, you can refine your plan and work on serious long-range goals. In Stage #3, The Spending Years, you will be making more money, but you will also be facing large expenditures such as college tuition. Stage #4, The Accumulation Years, finds you at the peak of your earning power, and nearing the end of your full-time career. By Stage #5, The Transition Years, your income will be supplemented by Social Security and/or a pension and post-retirement earnings. Stage #6, The Senior Years, sees you reaping the benefits of a well-planned retirement.

There's no one-size-fits-all definition of what constitutes a good life in retirement. That is something you must define on your own—taking your best thoughts and those of your spouse. If it is to work out as you hope, your retirement planning must reflect the hopes and dreams of all concerned.

This lesson includes a very useful Good-Life Quiz (Page 6), to help you figure out what constitutes the good life for you. Take the quiz, and read through the analysis of your answers. That will help you come up with your personal definition of what a good life in retirement would be.

Fine-tune your retirement plan by working your way through the Good-Life Retirement Wish List (Page 8). It will help you decide what you want out of retirement, how much it will cost, when you will want it—and whether it is something you really want, but could live without.

The most important variable on how long your retirement will last, and how much it will cost, is when you want to retire. Retiring early and spending the rest of your life sleeping late may sound wonderful now, but is it really what is best for you? Since early retirement may be forced on you despite your wishes, it is never too soon to think about how you would handle leaving the work force early, should it come your way.

Early retirement can pose a serious financial hurdle for you. In fact, it could deliver a financial blow that you may never recover from. Unless you have no other choice, approach it warily.

Before you make an early retirement decision, think through all the personal reasons. Also consider such crucial variables as your health, work situation, and whether you still have expenses ahead with your children or grandchildren. Nothing less than honesty will help you make this decision.

There's nothing very mysterious about a retirement budget. It is nothing more than your best estimate—as of right now—of what it will cost you to live. Remember, it isn't anything to be done once and cast in stone. Your goals and dreams will change. So will your financial circumstances. Do it now—and keep revising it.

There are rules of thumb you can follow in calculating how much you will spend in retirement. There's the 75 percent rule of thumb and the 100 percent rule of thumb. You can go beyond that and create a Basic Good-Life Budget—in which you cover things in broad detail. Or you can take the time to complete our Soup-to-Nuts Good-Life Budget—in which you use much more detail. What sort of budget you decide on is not as important as just getting started as soon as possible.

Creating your retirement budget is one side of the equation. The other side is calculating how closely your income will pay for all the things you need or want. So you tally up all possible sources of post-retirement income—and you keep revising that over the years, as your nest egg grows and you get a clearer idea of how much you'll get from your pension and from Social Security.

An important lesson is the idea of a phased-in retirement—of retiring one day at a time. You start planning for retirement when you are young and you never stop. You retire in stages—rather than working full-tilt one day and not working at all the next. A phased-in retirement could be the best thing for you—both financially and emotionally.

The best approach to take about planning for anything is to hope for the best, but prepare for the worst. Anything can go wrong with your retirement planning—from illness to boredom and depression. The best plan for a good life in retirement is one that makes provisions for every contingency—a plan that is designed to withstand all the potential shocks that retirement could send your way.