There are levels of preparedness when it comes to looking down the road at your retirement and how much you will need when you get there. The basic level of retirement planning is to sign up for your 401k at work, support legislation to keep Social Security intact, buy some life insurance and let it go at that. This system will work so there is reason to call this bad retirement planning. After all, if you began preparing for retirement in your early adult life and stayed with it, you will have a resource to retire on and that’s a good thing.
But there is a way to take it to the next level and that is to actually start putting some flesh and bones on your vision of your retirement and get a feel not only for the fact that you will retire but how you expect to live in retirement. Very often, we have idealistic visions of retirement life based on media images or the fantasy life of living in luxury and having little to do but golf in the morning and drink campaign and eat caviar all afternoon. So if you can get a realistic view of what you have as your expectations for retirement, you can start making adjustments to your retirement planning package right now.
Start with how you see your retirement lifestyle working. If you want little more than a manageable retirement apartment, a cat and the chance to knit or watch ESPN without interruption, that is a fairly modest retirement lifestyle to prepare for. But other people have adventure and high living in their retirement dreams. So if world travel or living in a luxury setting is part of that dream, only one person is going to make that dream a reality and that is you.
An exercise that is fun and eye opening is to detail every aspect of your dream life in retirement. Start by picturing your living conditions. Include your diet needs and wants as well as any entertainment and recreational needs you expect to be a part of retirement. For example, if you know you will want to go on long fishing adventures several times a year, you will need a RV and the finances to support taking off for the most scenic spots within driving distance to kick back and enjoy the fishing. So include the physical and financial needs for that lifestyle in this “detail” step of retirement planning.
You can complete the exercise by getting to such a level of detail that you could go out and price the dream in today’s dollars. Then when you take your “dream retirement shopping list” out into the open markets and use retail locations, catalogs and internet sites to actually find out how much it would cost to have that retirement today, that will shed a lot of light on your retirement preparations that you are doing.
Now, the actual cost of those different components will be much higher when you actually get to the point of retirement. You could try to factor in inflation and make those kinds of adjustments but don’t play with the formula so much that you get the idea that it’s impossible and give up. However, another factor that offsets the inflation factor is that your retirement life will be less expensive then your current lifestyle. Your daily needs may not be as demanding. If you sell your house after paying off the mortgage, your monthly expenses will go way down and you will have a significant surge of retirement capital that will come from the sale of the house. And you are not raising kids, putting them through college or having to support the lifestyle and wardrobe of a working person. All of these things offset the inflation issue.
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