As we live longer, becoming financially stable for retirement has become even more of a priority.
In the earlier part of this century, living for 15 or 20 years past retirement was common. Now, it’s not unusual for people who have retired at 55 to experience another 40 years of active, vigorous living surrounded by friends and family. Retirement now represents a large percentage of our life and should be planned for accordingly. Research conducted by Bankrate suggests that most people between 55 and 64 have an average of $120,000 in their bank account when they retire, while those aged 65 to 74 aren’t doing a whole lot better- the average bank account of people in that age bracket sits just $6,000 richer, at $126,000.
Financial stability is incredibly important at any age but becomes critical as we get closer to retirement and need to start planning for our life beyond pay cheques. Many financial experts recommend having at least seven times your annual salary put away before retirement if you decide to retire at 65. If you’re retiring closer to 55, that number should be closer to 10 times your annual salary. If you’re feeling uncomfortable with these numbers, don’t worry — you’re not alone. Feeling financially stable in retirement means evaluating your priorities with your family members and making a plan for how to achieve your goals.
Identify your priorities
The most important aspect of planning for retirement and feeling financially stable once you’ve left your job is identifying your priorities. For some, retirement means unlimited opportunities to travel wherever they want, whenever they want. For others, staying in their family home is their most important priority. Once you’ve figured out what your goals are, you can figure out how to achieve them, and what they’ll bring into your life.
During this initial step, it’s important to understand that it may not be possible to make all your retirement dreams happen at the same time. For most Americans, leaving a regular pay cheque involves a few sacrifices. Making a list of all the things you want to do can be helpful. Once you’ve discussed them with your family, you can go over them with a financial advisor, who can help you add real numbers into the mix.
Focus on what you have
Once you’ve come up with a list of your goals and priorities for retirement, your next step should be looking at what assets (monetary and otherwise) you’ve currently got to work with, and how you can use these to get closer to your goals. If you’ve got a house with no mortgage, that will give you a certain level of financial freedom. If you’re heading into your retirement with a solid career behind you and good health, those are things that you can take advantage of to get a part-time or remote position that can supplement your income. Make a list of all the assets that you’ve got, and bring that in to your financial advisor so they’re aware of exactly what you’re working with.
This is also the time to figure out what financial assets you’re working with. Familiarize yourself with the RRSP or 401(k) plan that you’ve been contributing to (hopefully) your whole working life, and make sure you know how much you’ll be able to collect once you retire.
One aspect of retirement that many people are afraid of is the cost. Leaving a monthly pay cheque can be intimidating, so it’s important to look at your budget, and see what your options are for cutting back. Once you’ve gotten a handle on what you’re spending on a monthly basis, and what your pension or benefits will bring in, you can compare those numbers, and see whether you’ll have to cut back.
For some people, this is as simple as spending less money on clothes and other luxury objects, but others may be looking at a larger disparity between what’s coming in and what’s going out and will need to make larger lifestyle changes. There are plenty of options if you’re in this situation including downsizing housing or selling off vehicles. One piece of wisdom that most financial advisors agree on is that you should never go into retirement carrying financial debt — this includes your mortgage. It’s a much safer bet to downsize rather than burden your family with the responsibility of paying off your debts once you’re no longer able to do so.
Consider retiring gradually
One option that is beginning to grow in popularity is gradual retirement. This means slowly cutting down your hours and work commitments and transitioning to part time employment during your 50s to 70s instead of simply quitting cold turkey. For many people, this approach helps ease the transition both mentally and financially. Even if your employer doesn’t have a part-time policy in place, it’s worth having a conversation about. Even if you don’t end up staying at your current workplace, a little creative thinking could turn your lifetime of experience into a lucrative consulting or training position.
Finding the right financial advisor for your needs
Navigating the complexities of retirement can be stressful, even if you’re already financially literate. Finding the right financial advisor that fits your needs is a key part of retirement. Look for someone who is familiar with your goals and driven to help you achieve them.
If you’re in the market for a new financial advisor, don’t be afraid to take meetings with several different financial professionals. You should always check their credentials, to make sure that they’re certified as a financial planner or consultant. Once you’ve found someone you like, don’t be scared to ask them questions about their level of experience, how they communicate with their clients, and their references. If you’re trusting them with your money, you should feel comfortable with their level of experience and their methods of communication.