{"version":"1.0","provider_name":"Retirement Hangout","provider_url":"https:\/\/retirementhangout.com","author_name":"Hangout Host","author_url":"https:\/\/retirementhangout.com\/index.php\/author\/keith\/","title":"Create Your Retirement Plan: the Eightfold Path - Retirement Hangout","type":"rich","width":600,"height":338,"html":"<blockquote class=\"wp-embedded-content\" data-secret=\"fnmcO8PSzg\"><a href=\"https:\/\/retirementhangout.com\/index.php\/2019\/10\/08\/create-your-retirement-plan-the-eightfold-path\/\">Create Your Retirement Plan: the Eightfold Path<\/a><\/blockquote><iframe sandbox=\"allow-scripts\" security=\"restricted\" src=\"https:\/\/retirementhangout.com\/index.php\/2019\/10\/08\/create-your-retirement-plan-the-eightfold-path\/embed\/#?secret=fnmcO8PSzg\" width=\"600\" height=\"338\" title=\"&#8220;Create Your Retirement Plan: the Eightfold Path&#8221; &#8212; Retirement Hangout\" data-secret=\"fnmcO8PSzg\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\" class=\"wp-embedded-content\"><\/iframe><script type=\"text\/javascript\">\n\/* <![CDATA[ *\/\n\/*! This file is auto-generated *\/\n!function(d,l){\"use strict\";l.querySelector&&d.addEventListener&&\"undefined\"!=typeof URL&&(d.wp=d.wp||{},d.wp.receiveEmbedMessage||(d.wp.receiveEmbedMessage=function(e){var t=e.data;if((t||t.secret||t.message||t.value)&&!\/[^a-zA-Z0-9]\/.test(t.secret)){for(var s,r,n,a=l.querySelectorAll('iframe[data-secret=\"'+t.secret+'\"]'),o=l.querySelectorAll('blockquote[data-secret=\"'+t.secret+'\"]'),c=new RegExp(\"^https?:$\",\"i\"),i=0;i<o.length;i++)o[i].style.display=\"none\";for(i=0;i<a.length;i++)s=a[i],e.source===s.contentWindow&&(s.removeAttribute(\"style\"),\"height\"===t.message?(1e3<(r=parseInt(t.value,10))?r=1e3:~~r<200&&(r=200),s.height=r):\"link\"===t.message&&(r=new URL(s.getAttribute(\"src\")),n=new URL(t.value),c.test(n.protocol))&&n.host===r.host&&l.activeElement===s&&(d.top.location.href=t.value))}},d.addEventListener(\"message\",d.wp.receiveEmbedMessage,!1),l.addEventListener(\"DOMContentLoaded\",function(){for(var e,t,s=l.querySelectorAll(\"iframe.wp-embedded-content\"),r=0;r<s.length;r++)(t=(e=s[r]).getAttribute(\"data-secret\"))||(t=Math.random().toString(36).substring(2,12),e.src+=\"#?secret=\"+t,e.setAttribute(\"data-secret\",t)),e.contentWindow.postMessage({message:\"ready\",secret:t},\"*\")},!1)))}(window,document);\n\/\/# sourceURL=https:\/\/retirementhangout.com\/wp-includes\/js\/wp-embed.min.js\n\/* ]]> *\/\n<\/script>\n","description":"Do you have a financial plan for your retirement?&nbsp; Do you need one?&nbsp; What exactly is a retirement plan, anyway?&nbsp; If your answers to these questions are a bit vague and uncertain, read on!&nbsp; This post will lay out why you need a plan for the years after you stop working (yes, you should have a plan), and how to go about creating one.&nbsp;&nbsp; The good news is it\u2019s not that hard to do.&nbsp; In fact, if you\u2019ve been reading my posts until now (and, of course, following up on my recommendations!), you\u2019re 80% of the way there already.&nbsp; This post pulls the pieces together into a single whole; eight steps leading to enlightenment &#8212; at least about your financial future. &nbsp; &nbsp; Why Do You Need a Plan? Perhaps you\u2019re in your working years, and have dutifully been putting away 10% of your income \u2013 maybe even 15% &#8212; every year in a 401(k).&nbsp; Well, most years anyway \u2013 when you didn\u2019t need the money for a house down payment, or a new car.&nbsp; Also, you struggle some with whether to put money into retirement savings or a college fund for your kids; it seems a stretch to do both.&nbsp; You worry about whether your parents, who are getting older, are going to need some help down the line.&nbsp; Meanwhile, you and your spouse, who are both healthy and adventurous, have talked about retiring early \u2013 maybe at 55 \u2013 buying a sailboat and traveling the world. &nbsp;You\u2019ve also talked \u2013 maybe dreamed would be more accurate \u2013 about getting a little cabin on the coast. Does this constitute a retirement plan?&nbsp; The answer is probably pretty obvious.&nbsp; Dreams and aspirations by themselves do not make for a plan.&nbsp; In fact, you (in this example) don\u2019t really know whether you\u2019re on track to retire at 65, let alone 55.&nbsp; Nor is it clear whether you\u2019ll be able to send your kids to the college of their choice, let alone buy a sailboat or a cabin.&nbsp; Your retirement, when you think about it realistically, may be more a source of worry than excitement.&nbsp; This is why you need a plan.&nbsp; You need to know whether those future dreams are realistic, and whether you are on track to achieve them.&nbsp; The only way to do this is to sharpen your pencil and crunch some numbers.&nbsp; This doesn\u2019t need to be a particularly onerous task; there are many software tools that can make it fairly painless.&nbsp; If you\u2019re so inclined, you can do what you need to do on your own computer or even with paper and pencil.&nbsp; &nbsp;Once you map things out, you may find you need to make some adjustments \u2013 save more, retire later, get a smaller sailboat \u2013 to make the numbers work.&nbsp; But the rewards are great; knowing whether or not you\u2019re on track to realize your dreams is a good feeling \u2013 much better than worrying, wondering and hoping.&nbsp; If you\u2019re about to retire, or even already in retirement, it\u2019s still important &#8212; and not too late &#8212; to have a solid plan.&nbsp; Ready?&nbsp; Let\u2019s get started. Step 1: Begin by Setting Goals Hold off for a moment on firing up the spreadsheet.&nbsp; The first, very important, step in planning is to define your goals.&nbsp; If you\u2019re a couple, you should sit down and do this together to make sure you\u2019re on the same page.&nbsp; Couples often have different ideas on when to retire and what they\u2019d like to spend their time doing.&nbsp; Discussion and compromise may be required!&nbsp; Defining your goals should not just be a financial exercise.&nbsp; What do you actually envision doing when you stop work?&nbsp; Do you want to stay where you are or move to some idyllic (or cheaper) location?&nbsp; Do you have interests or hobbies that will keep you busy or do you think you might want to work part-time to avoid going stir-crazy?&nbsp; A comfortable retirement is going to be the biggest goal for most people, but you should also identify other goals, especially if they\u2019re likely to have a significant impact on your finances.&nbsp; They may include aspirations like those listed above \u2013 retiring early, traveling the world, getting that dream cabin, sending your kids to college.&nbsp; You may also have responsibilities, such as caring for an aging or disabled family member, which you should include in your plans.&nbsp; You will very likely need to prioritize: supporting your kids through college and not being a burden in your old age might be more important than retiring early.&nbsp; Write your goals down so that you can see them all in one place and prioritize them more easily.&nbsp; OK?&nbsp; Now let\u2019s translate your life goals into specific assumptions and numbers \u2013 a plan.&nbsp; Step 2: Estimate Your Spending in Retirement (see this post) You\u2019ll need to estimate how much money you\u2019re going to spend each year in retirement.&nbsp; Retirement planners sometimes recommend assuming that your retirement spending will be 70 to 85% of your pre-retirement income.&nbsp; This sort of rule-of-thumb estimate is OK if you\u2019re many years from retirement, but if you\u2019re getting close you should take the time to come up with something more accurate. &nbsp; I recommend estimating retirement spending (and your other multi-year projections below) in today\u2019s dollars \u2013 that is, netting out inflation.&nbsp; This makes it easier to project expenses over time (you can simply project your current spending level without adding some sort of guess on inflation), and makes it easier to interpret all your out-year estimates (you don\u2019t have to adjust for changes in purchasing power \u2013 a dollar in 2050 buys the same amount as a dollar today).&nbsp; If you\u2019re already retired, estimating spending is easy \u2013 it\u2019s your current spending level (plus or minus any expenditures you\u2019re pretty confident will change).&nbsp; If you\u2019re not yet retired, you\u2019ll need to come up with an estimate based on your current expenses.&nbsp; Look at your current annual budget \u2013 what you\u2019re actually spending money on, not some aspirational ideal.&nbsp; (This is most easily done if you use an online budget tracking program &#8212; often offered for free by banks and brokerages.)&nbsp; Then adjust for items you know or expect will be different once you\u2019re retired, including:&nbsp; Social Security, Medicare and pension contributions, which will cease. Travel, recreation and hobby spending, which may go up. Health care\/medical costs, which will likely go up.&nbsp; (Health insurance costs can be a brutal surprise to retirees.&nbsp; Even after Medicare kicks in at age 65, there are insurance premiums and other costs.) Kid-related expenses, which may go down once kids are out of the house. Your spending estimate doesn\u2019t have to be perfect, but should be roughly right.&nbsp; Be careful about assuming a much lower cost of living based on the assumption that you\u2019ll be living somewhere else, unless you\u2019ve tested or otherwise confirmed your assumptions.&nbsp; Example: Estimated Retirement Expenses for a Couple Expense Category Annual Amount Pre-retirement household expenditures (including taxes) $100,000 Reduced Social Security\/Medicare\/Retirement contributions ($25,000) Additonal travel, hobby, recreational costs $7,000 Additional health care costs (after 65\/Medicare) $8,000 Estimated retirement spending $90,000 Step 3: Estimate Your Income in Retirement Next, estimate your income in retirement.&nbsp; This will include expected social security benefits (you can get an estimate from mysocialsecurity.gov), pensions you have coming to you (contact the agency providing the pension to get an estimate), and any annuities or other sources of regular income you anticipate.&nbsp; Make sure you consider your options: it\u2019s generally a good idea for the higher earner to defer Social Security to 70, and to choose the pension benefit that provides maximum benefit to the survivor (see this post and this one).&nbsp; Both of these choices protect the surviving spouse from a precipitous income drop when the first spouse dies.&nbsp; Pay attention to the year(s) your income sources come online. Example: Couple&#8217;s Estimated Retirement Income Income Source Age Amount Spouse A &#8211; Pension, govt job 65 $18,000 Spouse A &#8211; Social Security &#8211; Full Retirement Age &#8211; Deferred 6770 $22,000$28,000 Spouse B &#8211; Pension, teaching job 65 $12,000 Spouse B &#8211; Social Security (Full Retirement Age) 67 $12,000 Total Anticipated Income 70 $70,000 Step 4: Project Your Assets Most peoples\u2019 anticipated expenses in retirement will exceed their expected income (often just Social Security retirement benefits).&nbsp; Withdrawals from a portfolio of assets will need to make up the difference.&nbsp; A key aspect of retirement planning is estimating how much in the way of assets you will need to cover the gap and how to manage your portfolio (and withdrawals, once in retirement) to make your portfolio last.&nbsp; If you\u2019re at the point of retirement (or already in retirement), you know what your retirement assets are; they are your current savings and investments, less any big anticipated expenses (such as college costs or weddings), plus any expected financial windfalls you expect to come your way (e.g., inheritance, downsizing gains).&nbsp; If you\u2019re a few years from retirement, add the amount you expect to contribute to your savings by the time you retire.&nbsp; If you\u2019re more than a few years from retirement, you\u2019ll want to account for some growth in the value of your invested assets (see Step 5, below). In your first run-through, look only at your liquid assets (stocks, bonds, CDs, IRAs, etc.) \u2013 not your house, because it\u2019s not easy to draw down your house as income.&nbsp; If you simply don\u2019t have enough, you can include the value of your home and consider ways you could tap that equity (e.g., downsizing).&nbsp; A reverse mortgage should be a last resort.&nbsp; Example: Couple&#8217;s Estimated Retirement Assets Asset Type Amount Traditional IRAs and 401(k)s (total, both spouses) $300,000 Roth IRAs (total, both spouses) $160,000 Non-retirement savings $100,000 Planned retirement contributions (two years till retirement) $40,000 Home (equity value) $400,000 Total liquid assets (w\/o home) $600,000 Total assets including home $1,000,000 Step 5: Put It Together \u2013 Do You Have Enough? (see this post and this one) This step is the crux of your retirement plan \u2013 putting your expenditure, income and asset information together into a financial projection for your retirement.&nbsp; Unless you have a good reason to think otherwise, you should assume that you (or at least one of you, if you\u2019re a couple) will live a good long time \u2013 until 95 or even 100.&nbsp; Life expectancies are lengthening, and you don\u2019t want to outlive your money.&nbsp; For most couples, this will mean a retirement horizon of 30 years or so.&nbsp; If you have reliable sources of income (social security, pensions from sources you can count on), that cover most of your expenses, you are in good shape \u2013 and also the exception.&nbsp; Most people are in the position of relying on their retirement investments for a significant portion of their income.&nbsp; In this case, it\u2019s hard to know for sure whether your money will last, because of the variability of investment returns and, in particular, sequence of returns risk \u2013 the possibility that you will experience terrible stock market returns in the first decade or so of your retirement.&nbsp; The only way to avoid this risk is to invest so conservatively that there is little prospect of gain \u2013 not an option for most people.&nbsp; Fortunately, there are reasonable strategies for threading this needle \u2013 taking on some risk (so your portfolio can grow) and still being fairly confident that your money will last.&nbsp; (See Steps 6, 7 and 8.)&nbsp; Here are three methods for assessing whether you have (or will have) enough money to last: Method 1: Apply the 4% Rule.&nbsp; This is the simplest method.&nbsp; Subtract your expected annual income from your anticipated expenses, and multiply the resulting gap by 25.&nbsp; This is the amount of assets you need to have at retirement.&nbsp; So long as you maintain a balanced portfolio of 40% to 75% stocks, withdrawing 4% a year (adjusting each year for inflation) for 30 years would have worked any time in the last hundred years.&nbsp; This approach is simple,...","thumbnail_url":"http:\/\/retirementhangout.com\/wp-content\/uploads\/2019\/10\/dharma_Lhassa-larchedegloire.com_.jpg"}