Congratulations! You are planning to retire in 2012. Are you prepared, both emotionally and financially, for retirement? Taking these three financial and personal steps before you retire, will help you avoid potentially serious financial mistakes, and reduce the personal stress associated with your transition from work to retirement.
Step 1. Calculate How Much You Can Safely Spend
How much can you safely spend in retirement? Overspending can result in the disaster of running out of savings during your retirement. To calculate your monthly safe retirement spending budget, multiply your net worth by 4%, divide that amount by 12 months, and add any monthly retirement income you may receive when you retire. Here is an example…
Net Worth – $450,000
Social Security – $1,000
Monthly Safe Spending Budget = ($450,000 x .04*)/12 + $1,000 = $2,500
*.04 or 4% is the standard safe withdrawal percentage1.
$2,500 per month is the starting amount you can safely spend per month when you retire. Next year, and every year after, increase your monthly retirement budget by the published Social Security COLA (cost of living adjustment), to keep up with inflation.
Step 2. Create a Safe Retirement Budget
Now that you know how much you can safely spend in retirement, you need to create a retirement budget, that matches the amount you can safely spend. Using pencil and paper, or free retirement budget software, create a monthly retirement budget that matches the amount you can safely spend.
Make sure your monthly retirement budget includes both recurring and non-recurring expenses. Recurring expenses are expenses that happen every month, such as rent, cable, food, utilities etc. Non-recurring expenses are expenses that happen only once or a few times a year, such as holiday and birthday gifts, taxes, vacations etc.
Step 3. Get Social
The transition from work to retirement, for many people, can be a stressful and depressing experience. Due mainly to the loss of social interaction with co-workers and the lack of activities to replace work.
Avoid retirement stress and depression, create a smooth transition from work to retirement, by getting social outside of work. Join community groups, local volunteer organizations, take college courses, renew a long lost hobby. Begin filling your time with non-work activities and social circles before you retire..
Taking these 3 retirement planning steps before you retire in 2012 will help, reduce or eliminate the financial and personal stress associated with retirement, and put you on track to enjoy a safe and happy retirement..
Sources:
1. Journal of Financial Planning
Always consult an appropriate professional before making any life-changing financial decisions.