Retirement Planning is one of those things that everyone knows they should do, but many fall short in the taking action department. This is usually because they simply don't know where to start. That's a reasonable concern, but it's really just a matter of having a framework of understanding as to what comprehensive retirement planning entails.
We believe there are six ideas that everyone should address:
Current Cash Flow
Money is the fuel that drives any economy, and your family finances are an economy, even if you are a family of one. As you'll see, retirement planning involves some commitment of funds. So the appropriate first step is to know where you're starting from by creating a cash flow statement. This is simply a list of income sources and expenditures.
If your cash flow statement revealed that you have limited discretionary income, at least part of the problem is probably excessive debt. If that's the case, don't despair. With a plan, and a little discipline, you may be able to pay down your debt much quicker than you might think. One great resource is PowerPay.org, a free website that was created by Utah State University to help debtors become savers.
Something that can get people in financial difficulty very quickly is the unexpected expense. Whether it's the need for a new range, an emergency car repair, or some other large unexpected expense, these can be devastating unless they're planned for. What that requires is the creation of an emergency fund that is set aside for the sole purpose of paying for unexpected necessities. A good rule of thumb is to have enough saved to cover six months of normal living expenses. And, when money is taken out to cover something, the fund should be replenished as quickly as possible.
Most people have adequate risk protection (aka. insurance) on their house, car, and health - usually because they're forced to by a lending institution or the government. But many people are not adequately covered for their life. Often that's because they see life insurance as a way to leave their families rich in the event of their death. But that's not how life insurance should be viewed. Rather, it should be viewed as a means to create a pot of money that will enable the surviving family to generate an ongoing income that replaces the income lost due to the death of a bread winner.
Savings and Investments
This is the fun part. This is where the steps designed to help get your financial house in order begin to pay dividends - literally. By implementing and following a customized savings and investment plan, you are creating a pot of money that will enable you to work toward the kind of retirement lifestyle you want.
This component is often overlooked by people planning for retirement. After all, if you're leaving an estate, that means you're dead and no longer need the money, right? But failing to adequately plan your estate could cause your heirs to have to pay a substantial percentage of whatever you leave to the I.R.S. Not a very attractive alternative, is it? The fact is, even if you think your estate will be modest, you should consult with an estate planning specialist. Not only can they help you avoid excessive estate taxes, they can also advise you on ways to potentially grow your estate and maximize your monetary legacy.
How you might apply the steps we've discussed above will depend on your current age, and a variety of other factors. When creating your retirement plan, you should always seek the help of a qualified professional.