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GBIC >> Retirement >> Advice
Advice for Retirement
There is standard advice for persons wanting to prepare for retirement - start early and save till it hurts. Nothing beats putting money into the bank and letting compound interest grow the money over long periods of time.

Aside from the conventional (excellent) wisdom, however, there are other things to do.

Plan, Plan, Plan Talk About It Pay to Talk About It
Education Start Early 70% Rule


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Plan, Plan, Plan

The truth is, that with only a few weeks of effort everyone can learn enough to create a basic retirement plan. Yes, there are details which will take time to work out and yes you'll change your plan over time, but a basic retirement plan can be worked out in a short time - especially if you use the ready-made, free retirement model spreadsheet available from this site!

Create your own retirement plan as early as possible - as soon as you begin your working career. Then revisit that plan twice a year all the way up to retirement.

The importance of a plan is very simple - you have to have a plan in order to know whether you're making progress towards retirement. Only by having a plan can you make the best decisions along the way about how to change the steps you're taking towards retirement.

Even if you think you're already doing all you can to save towards retirement, you'll find that if you are not keeping up with the plan that you created, then you'll become even more creative towards meeting the plan.


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Talk About It

No, this doesn't mean to get on the local radio show and tell the world about your retirement plans.

What is does mean is that you want to reach retirement with you and your spouse expecting the same thing. If you get to retirement day and you expect to travel the US in a travel trailer and your spouse is ready to hit the hammock with a book, then you'll learn the meaning of stress!

Both spouses should understand the plan, the sacrifices it takes to meet the plan, when the plan will take effect and what is required of them once the plan goes into effect.

Don't confuse planning with rigidity. Regardless of what your plan says, you can always change your mind. But changing your mind means changing the plan and you should always have a plan that you can point to as the mutual agreement between you and your spouse.


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Pay To Talk About It

While creating a retirement plan is not that difficult, and most folks can learn to do one on their own, there are pitfalls on the road to retirement that simply won't be obvious to the average retiree.

Virtually every financial aspect of your retirement plan is affected in some way by government regulations and the average retiree simply cannot spend the time to keep up with all of the ins and outs of those regulations. Some of the regulations affect the age at which you can draw from your retirement investments, some affect the taxes you will pay, and some affect what you can leave to your children.

Because of the huge impact these regulations can have, your retirement planning should include regular consultations with a professional retirement counselor. Whether you heed their advice is up to you, but the minimum is that you should use them as a resource for staying aware of issues which affect your retirement plans.


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Education

Information about retirement is readily available. The more obvious sources of information include:
  • Books
    Books usually contain the most detail and tend to be the most accurate because the author had time to research the topics as well as submit them for peer reviews. Because of their relatively long preparation time, books also tend to have information that is more out-of-date than is available through magazines. Fortunately the basic information about retirement is the same now as it was 10 years ago, so books can be the best way to learn the basic of retirement planning.

  • Magazines
    Magazines are a great resource. They're current and they can contain in-depth articles specific to retirement. The journalists are generally in contact with all of the main players in the industry and their articles typically represent the current thinking of the financial community. The fierce competition in the publishing industry helps guarantee that the latest, most important issues are covered.

  • Newspapers
    There are specialty newspapers, such as the Wall Street Journal, which contain very detailed financial information but are really designed to give broad coverage of business topics. There is no daily, national newspaper devoted exclusively to retirement, but there are a number of well-known journalists who write a weekly article on the topic of finance. You should find whatever you local paper prints from the local expert and monitor the articles for information of interest to you. The local expert is more likely to include information about topics that affect your directly (community, state, or locale issues) than you might find in a national paper.

  • Web Sites
    Nothing can be more current than a web site. If you want the latest information then head for the web. The down side is that web sites are typically difficult to navigate so finding the information you want may take some time. Probably most important is that web sites are not portable (you can't read it on the plane, in a car, or anywhere else except right in front of the computer screen).

  • Friends, Co-workers & Family
    In general you expect that most of your friends, family and co-workers are also interested in retirement. Be sure to share what you learn with them and encourage them to share any tips they might have picked up that your missed. You'll often find that someone else has heard something of value to you, or has taken a different interpretation on some facts that you might not have thought of. You will definitely want to leverage off the work that others have put into their own retirement planning. You don't have to share the specifics of your personal finances, but you'll definitely was to benefit from the study/learning efforts of everyone you know.

  • Classes & Seminars
    Because of the huge numbers of baby-boomers who will be retiring over the next 10-20 years, the retirement industry is growing rapidly. Colleges are responding with courses specific to the interests of retiree's and commercial companies are also responding with retirement seminars (some free and some not). Even with the expected advertisements you'll see in sponsored seminars, there is very good information available from such events that you'll want to consider viewing.

The very last thing you want to happen is to get to retirement age only to discover that something you didn't know is preventing you from retiring. On a regular basis throughout your working career you should pursue a steady program of education about matters which affect your retirement plans. You don't have to learn things in any particular order nor do you have to learn them all at one time, but you should be continually growing your knowledge base on topics which will affect your retirement plans. Some of the things you'll want to be well-versed in include the following:

  • Tax Laws
  • Social Security
  • Medicare
  • Estate Planning
  • Stock Market
  • Investment Strategies
  • Inflation
  • Medical Costs
  • Cost of Living
  • Company Pension Plan
  • Company Retirement Benefits
  • Health Risks for Seniors

This is by no means a complete list of areas in which you should be knowledgable, although it is certainly representative of the types of areas which affect your retirement plans.

Remember that you don't have to gaining knowledge in all of these areas overnight. Learn a little each year and use what you learn to help improve on the retirement plan that you have created.


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Start Early

Virtually every retirement planner will agree that this is the single most important part of a successful retirement plan. Two simple examples are all that is needed to drive this home.
  • Example 1: $100 per month starting at age 25 = $1,000,000 at age 65
  • Example 2: $100 per month starting at age 35 = $ 500,000 at age 65
Which would you rather have? It's a no-brainer. The sooner money is placed into an account where compounding interest can work for you, the more money you will have for retirement - much more money!

Start early is the number one piece of advice that can be given to young folks who are trying to understand what steps to take to reach retirement with enough money to live comfortably for the rest of their lives.

Many young folks fall prey to the idea of waiting until their incomes grow, usually during mid-career, before beginning saving for retirement. Again, two simple examples should be all that is needed to drive this home:

  • Example 1: $100 per month starting at age 25 = $1,000,000 at age 65
  • Example 2: $500 per month starting at age 45 = $ 500,000 at age 65
Which would you rather have? It's a no-brainer. Putting more money in at a later stage in life is simply not the best retirement savings strategy. It's the money that is placed early that matters the most. So save all you can early in your career to get the best results.


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70% Rule

A common rule of thumb is that retirement income needs to be about 70% of pre-retirement income. There several assumptions about pre-retirement expenses which support the rule of thumb:

  • ~10% of your income is going to savings for retirement and these savings stop at the age of retirement

  • ~20% of your income is being used to pay for a mortgage, which is paid off by the age of retirement

If both of these expenses go away at retirement, then the 70% rule may apply to you. However, neither of these rules are a good fit for many retirees.

The point is that if you've heard the 70% rule of thumb you must realize that you have to take specific actions for your post-retirement expenses to go down. You must have been saving at a high level and you must have bought your home early enough that you will have it paid off by the age of retirement.

Yes, there are some work-related expenses which will go down after retirement (travel, clothing), but those expenses are usually a small part of most workers budgets. Also, some retirees decide to sell their home and use the funds to purchase a smaller house, as well as to generate income for retirement. There are a few options such as this which can reduce post-retirement expenses, but they don't just happen. You have to take positive steps for expenses to go down.

Post-retirement recreational travel is one activity which can actually cause expenses to rise after retirement. Retiree's often have a lot of travel plans but quickly find that their pre-retirement budget does not support their travel desires. See the travel section at this site for some budgetary information on travel expenses.

Health costs are another expense which may rise after retirement (although not immediately). In particular, if a person retires at an early age before Medicare is available the cost of medical insurance can easily add $1000 of monthly expense to the retirement budget.

The bottom line is that retirement may or may not result in a reduction of expenses. You have to look at your particular expense patterns and determine if the 70% rule applies, or whether your expenses could actually go up after retirement. Planning ahead is the key for successfully reducing expenses after retirement.