So, You Have Decided When To Retire
By Rick Imhoff, CFP
As we approach our retirement age, we begin to look at what we have accumulated for retirement and then come face-to-face with the reality that what we have accumulated will determine our standard of living throughout retirement. We may find it necessary to work a little longer than planned or work part-time during the first few years of retirement to provide the level of income we require.
On the other hand, we may find ourselves faced with a tempting idea of retiring early because our investments have grown more rapidly than anticipated. Whatever the situation, there are a few things to consider.
First, you will need to determine how much additional income you may or may not need above your Social Security and pension to maintain the standard of living you wish to enjoy during retirement. This analysis begins with a look at your current budget by including new expenses you will incur once you retire, such as more travel, long term care expenses, or larger gifts to your children. You will also subtract expenses that will be reduced or eliminated at retirement, such as a mortgage, credit card payments, or college tuition.
Next you will need to identify the sum of money you will need at retirement from which withdrawals can be made over your retirement years to maintain your standard of living, no matter how long that will be. This sum of money may be needed to supplement any short fall from your Social Security and pension to meet your income needs. At this point, you have two issues to address which will likely require some expert advice.
One issue is inflation. The income you need to cover your expenses for the first month of your retirement will not be the same amount for month 10, 50, or 100. As we have seen over the past several years, the cost of most things we buy every day, go up in price over time. Sometimes this occurs at a rapid pace, sometimes at a slower pace. For a few items, the price may decrease. Therefore, when calculating the sum of money you need at retirement, you must consider some cost of living increase.
The other issue is how long you will live. Life expectancy continues to increase as we have more medical advances, embrace the benefits of regular exercise, and learn more about what food we should and should not eat. It is becoming more common for people to live into their 90’s and beyond. For some of us, our retirement years may be as long or longer, then our working years. More money will likely be needed to fund a longer retirement.
Finally, you will need to monitor the progress towards your retirement goal at least once a year. Just because you have a good year with your investments does not necessarily mean you can save less the following year. Always remember, it is not a problem when you end up with too much money, but it usually is a problem when you don’t. Set aside money for as long as you can, watch your expenses, and adjust as needed.
Rick Imhoff, CFP®, is Senior Vice President & Senior Trust Officer for MidAmerica National Bank. He can be reached at 309-647-5000, ext. 1130 or by email.
Investments are not FDIC-insured, hold no bank guarantee, may lose value, are not a deposit, and are not insured by any federal government agency.