Image by TW Collins via Flickr
One of the essential issues of personal finance is that it is vital that you consider what you want out of life, and how you can use money to reach those goals. Money really is more of a means to an end, and it is vital that you consider what you want out of retirement. As you plan to retire, and begin saving money for that not-as-distant-as-you-might-think day when you want to leave the rat race, the first thing you need to do is figure out what you want out of retirement. It may sound selfish, but if you need take care of you first. If you don’t know where you are going, and why you are going there, you can’t create an effective financial plan. And retirement is a pretty big financial destination.
Deciding What You Want Out of Life
For every person, this is different. Do you really want to fully retire, or would you like to maintain a part-time job for the social interaction? What sort of job would you like? Is your style more about traveling around? Do you want to visit your grandkids and have them come see you? Are you interested in learning new skills and participating in hobbies? Do you want to leave a legacy, establishing a foundation that can enrich others’ lives? Perhaps you want to do a little of all these things.
Take a few minutes to examine your values, goals and desires. Figure out what is most important to you, and what you would like to do with your life (and your money) as you age. Write down a few goals, and discuss your desires with your life partner (since you are likely to be in retirement together). Create a plan for your retired life, based on what you want to get out of it.
Creating a Plan for Retirement
Next, you need to create a plan for the retirement you want. Look at what you would like to accomplish during retirement, and estimate how much of a monthly income would be required to support you in that lifestyle. Consider sources of income that you are likely to have. Some sources of income during retirement include:
- Part-time job.
- Business venture.
- Residual income from web sites and online business.
- Royalties on creative efforts.
- Income from non-retirement account investments, such as from dividend paying stocks and from the interest from bonds.
- Income from retirement accounts.
- Reverse mortgage (but remember it’s actually a loan).
- Social Security (but don’t get too dependent on that).
While you probably won’t have access to all of the above income streams, you can start now to cultivate the income streams that can help you to reach your goals in retirement. Now is the time to contribute as much as you can to retirement accounts, and also to look at building your income investing portfolio. You can even establish a business now, either brick-and-mortar or online, to grow and provide some income for the future.
Whatever you do, though, it requires planning a certain degree of number crunching. When creating a portfolio designed to help you get what you want out of retirement, it is vital that you consider some level of diversification, including stocks, bonds, cash and maybe even some other investments. You should also be wary of relying on any one source (including a day job) for all of your income. And, of course, as horrible as it may sound, you should plan to take care of your retirement needs before contributing to your child’s 529 college savings plan. Make sure your retirement is shored up first, since you can’t get the same kind of loans for retirement that your kids can get for an education.