5 Things to Consider for Retirement Planning

As long as we are alive, we need to manage our time and money. Once we enter the hereafter, neither matters :).

For now, let us turn our attention to how we manage our time and money in terms of retirement planning.

I have written several posts regarding retirement planning in the education page. In continuation of the personal finance checklist, I would like to provide an overview of the five things to consider for retirement planning.

 

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Retirement Planning Overview

Going through these 5 things / steps is an iterative process. By the end you might determine that you could retire earlier than your target age or vice versa.

You might conclude that you need to save more or less on a monthly basis to retire by your desired retirement age.

Or, you might get more aggressive or conservative on your investments to meet your goals.

This is a very intense topic and I use a hands on DIY approach to this and will be referring to several of my earlier posts on retirement planning.

Whether you are DIY type or consult a financial expert, knowing the steps to go through is essential to effectively plan for retirement.

There are several online calculators available to do this if you do not want to use an Excel spreadsheet like me.

I have just touched the tip of the iceberg on this topic. My objective on this post is to give a very basic primer on things to consider for retirement.

It is a good thing to visit this exercise once a year.

 

#1 When do you plan to retire?

You must first have the time horizon. You should have a target age and then create a plan. It is always good to have a plan and then adjust it as your life evolves.

Not having a plan is not an excuse.

 

#2 Life Expectancy

How long to do you expect to live? This is something that you need to estimate. There are lot of life expectancy calculators available online.

You could use these to come up with an estimate or choose to be conservative about it and just estimate to live up to 120 years in your financial calculations.

 

#3 What is your targeted burn rate?

Burn rate is the percentage of money that you will be withdrawing from nest egg retirement savings to live your retired life assuming you are no longer working. Historically, financial experts have recommended a burn rate of 4% per year.

This is strictly my opinion about burn rate:

2% burn rate – conservative

3% burn rate – medium risk

4% burn rate – medium to high risk (given the extremely low interest rate environment we have been in for the past several years)

If you need to be at the burn rate of 4%, it might be a good idea to continue working and saving up for retirement or continue with part time work during retirement to reduce your burn rate.

If your nest egg return rate is greater than you burn rate, then you could consider yourself to be in good shape unless anything unforeseen happens.

 

#4 Nest Egg needed at Targeted Retirement Age

If you have estimated answers for items #1, #2, and #3, you can easily calculate how much you need to save for retirement.

The nest egg I had in mind when I was in my mid twenties has climbed up.

As you work, you pay and your standard of living increased. As these increase, the standard of living you expect at retirement also increases.

Thus for me, the nest egg has gone up and I have had to revise my plans accordingly.

 

#5 Saving for Retirement

Once you determine the nest egg needed, you can calculate how much you need to save on monthly / annual basis towards your retirement assuming a certain rate of return.

I am a DIY type person when it comes to personal finance. So, I would say that I am trending to be on track for my retirement goals. 

What are your thoughts on retirement?  I would love to hear your thoughts and feedback. If you enjoyed reading this post, please share it in social media.

 

 

 

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4 thoughts on “5 Things to Consider for Retirement Planning”

  1. Nice rundown of the factors that go into what you need to consider to enjoy a financially secure retirement. The key is to take those factors and develop a detailed, comprehensive plan; and manage it as you progress toward the desired retirement date.

    1. Thank you, James! Yes, just like any other project, retirement is a project that needs to be managed and kept on track.

      –Michael

  2. Nice list! Helpful – really useful, I am on the road to financial independence day and I realize didn’t cover some parts and the plan is… not a real plan.

    My target age is 50 (I dreamed to stop work at 40, but I already have too many candles on my cakes 😀 ). I don’t know my burn rate. I calculated that I can live with rental income from two houses with mortgages fully paid.

    Now I simulate this kind of life now and I can manage 🙂 But after several years living my current lifestyle, I realize I need some extra money at retirement. So, I am looking into my plans again.

    Another thing I am lookin into is that I will downsize to a smaller aprt. (probably I will move in the smallest one and rent the biggest ones).
    In addition, I expect after 67 (70 years old) to receive some government support. It is not a lot but I am factoring it into my plan.

    1. Hi Claudia,

      Thank you! Really glad that you find this post useful. It is something we need to review on an annual basis. Life changes, our expectations change, and we need to review where we are and make course adjustments as appropriate.

      –Michael

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