For most people, few things would make 2010 a happier New Year than the prospect of retiring. Leaving the rat race behind for a life of rest and relaxation is a wonderful plan, as long as you've done your financial planning in advance. To make your dream a reality, there are some critical questions to ask before you quit your day job. (Learn three ratios that will help you evaluate your investment returns, in Measure Your Portfolio's Performance.)
- Do I have enough money to sustain an acceptable standard of living?
Whether your plan is to live off of your savings, collect a pension, work part time, make due with Social Security or some combination of these options, you need to take a close look at your income stream and your expenses. If you can compare your income to your expenses and still have money left over at the end of the month, you're off to a good start.
- For how long can I sustain it?
For some lucky individuals, retirement can last a long time. If you quit at 65 and live to 80, that's a decade and half of living you'll need to fund. If you retire earlier and live longer, you could be looking at two or even three decades of expenses that will need to be funded. Will your income sources last that long? Give your portfolio a thorough check up to make sure it will be there when you need it most.
- What will I do if things change?
Pension plans fail; Social Security is in on shaky legs; bond issuers file bankruptcy, and stock markets collapse. Change is a constant in life, and you'll need to be prepared for the possibility that one or more of your income sources dries up. Having a diversified portfolio with multiple sources of income is a proactive way to prepare for possibility of unexpected changes.
- How will I afford healthcare?
If your financial situation is sound and the outlook is bright, healthcare is another topic to consider. You can't turn on a television without hearing about the rising costs of treating the sick and the increasing push to make patience pay an ever-increasing part of the bill for care. Making sure your medical needs will be covered is an important part of the retirement planning process.
Finally, its time to think about having some fun. Working for a living, saving and investing and planning your escape from the daily grind can be such all-encompassing activities that it can be a challenge for the newly retired to figure out what they are going to do with all of their newfound free time. To keep a smile on your face during your golden years, spend some time planning to have fun! (The retirement income distribution methods found in 3 Ways To Make Your Retirement Funds Last are all viable; the one you choose will depend on your personal circumstances.)