Even in this still-uncertain economy, there are fundamental aspects of financial planning that can secure a comfortable retirement.
Know Your Objectives
The first aspect of retirement planning is determining goals and expected life situations. My future financial plan must include college costs for five children and, with four of my six children unmarried girls, a few weddings.
Know Your Strengths and Weaknesses
Create a balance sheet listing your assets (home, car, savings) and long- and short-term debt. Take into consideration anticipated maturities for major financial obligations and how they fall into your calendar of events.
Create a Budget
In addition to knowing what you own and owe, a clear calculation of income and outgo is vital to preparing for retirement.
Create Discretionary Income
Prioritizing becomes even more important in retirement when funds may be limited. Keep living costs as low as possible, and, if necessary, consider a part-time job to earn some extra cash without totally abandoning retirement. I substitute teach as it provides both the extra income and the flexibility to do the things I want to do.
Weigh the Consequences
Most financial decisions impact retirement in one way or another. Eliminating $40 from my weekly entertainment budget allows for $2,000 annually in retirement savings. I reduced my monthly mortgage payment by more than $400 with a recent loan modification. However, this moved my mortgage maturity to 2051, when I am 92, meaning I will have a house payment for the rest of my life.
Create an Emergency Fund
My retirement income is fairly solid (a mixture of Social Security, pension plan, liquid retirement funds), so my emergency fund does not need to cover a loss of income. However, car and home repairs, medical and dental costs, and other expenses can wreak havoc on an unprotected budget.
Taxes
Investing in tax deferred instruments can save tax money now that can be further added to retirement savings. When I worked full-time, contributing to my company’s 401(k) plan not only deferred tax obligations, I earned an extra 4% company contribution. Since I am over 50, I can contribute catch-up contributions and benefit from additional tax deferments now.
Choose the Appropriate Instruments
With anticipated college costs, investing in tax-advantaged education accounts makes good financial sense. Early retirement puts an emphasis on making my money last, so staggered maturities and a mixture of long-term investment and liquid funds allows me to save for the future while meeting the obligations of the present.