The phrase “retirement plan” is at the core thousands of baby boomer conversations and Internet searches each day. Yet, I wonder if all of those conversations and searches are directed at the same information. That’s because a “retirement plan” can mean different things to different people and in different contexts. Generally, the concept of retirement planning is much broader than many of us contemplate, and certainly goes well beyond finances.
1. What does “retirement” mean in my plan? I have been consistent in this area: Retirement means being financially free to choose if and how much I want to work to earn income. Others might have a completely different definition, such as not working, period.
2. When will I retire? Although obviously subject to financial considerations, having a target retirement date has to be part of a plan. A retirement plan without setting a goal is not really a plan, is it? A related concept is that of a phased retirement, which is something that I am interested in.
3. What will I do when I retire? It’s safe to assume that a real retirement means less work and more time to fill with other activities. What will those activities be? The importance of this part of your plan is made clear in the book “Retirement Rx – A Plan for Living the Rest of Your Life.” I intend to study and write a lot more about this important topic.
4. Where will I be when I retire? Many boomers plan on relocating in retirement, for a variety of different reasons: weather, proximity to family, lower cost of living, etc. Other retirement location factors can include geographical or recreational attributes, such as living in a rural or small town community, living in a college town, being on the water, or even retiring in a foreign country. This is one aspect of a comprehensive retirement plan where you should probably “try before you buy” at least by vacationing in your target location.
5. How will I manage my retirement health care? Making sure that health care is available and affordable has to be a priority in any retirement plan. The starting point has to be estimating what your retirement health care will cost. Then you move on to understanding Medicare and/or other health care coverage.
6. How much income will I need in retirement? Notice that I did not say “how much will I need to retire?” The baseline question is what your spending and therefore your income needs will be in retirement. Although rules of thumb are often used for this part of the plan, I think that preparing a retirement budget is much more effective.
7. How long will I need retirement income? This is the polite way of asking how long you expect to live. Your plan needs to incorporate life expectancy information. The alternative could be an unretirement forced upon you by financial problems.
8. Where will I get my needed retirement income? Pension, Social Security, Investments – the traditional three-legged stool of retirement income planning. But it is much more complex, because at least some of your retirement income needs to be guaranteed to avoid a worst case scenario. Also, what happens if I become disabled by illness? That’s when long term care issues should be part of your retirement plan.
I’m not suggesting that these eight different topics cover everything that should be part of your retirement plan. For example, for some wealthier folks tax and estate planning must be discussed when the retirement plan is being created. But if you aren’t looking at all of these areas in your plan, you probably should.
What is it they say about a failure to plan?