Your retirement planning tool box should include these items: your current budget spreadsheet, your estimated retirement budget spreadsheet, your retirement planning notebook, your latest retirement savings account statements.
Your current budget spreadsheet is your baseline from which you form your retirement budget.
Some of your current expenses will stay the same, others will change.
You can review your current budget line by line and think about how each item will change once you no longer work.
Your estimated retirement budget spreadsheet is used to determine your minimum income needs. In addition to the items you transferred from your current budget, you should have new items that will be unique to your retirement. This is the most important retirement planning tool and should be updated frequently.
For example, long term care insurance premiums may not be on your current budget yet. You may need to add more money to your vacation pool if you plan to travel more when you retire.
The retirement planning notebook is the place to collect information for building your retirement plan. A To-Do list for things you need to research, and things you need to setup, like LTC insurance. Your notebook will evolve into your personal retirement planning guide as you collect the information you need, and increase your knowledge.
You can keep retirement account information in your notebook, for example, Social Security benefit statements, retirement savings statements, and brochures on places you want to go, for the fun side of retirement planning.
In the early years, before age 35-40, you should focus on automatic investing through a workplace retirement account, such as a 401k. If you don't have access to a 401k, then you should fund an IRA account. Make this a priority because this is where paying yourself first really matters. The longer and earlier you save something towards retirement, the easier it will be to have enough for what you need. You have the advantage of compounding interest on interest for many years.
Between ages 40 and 50, you may be able to visualize more clearly what you want for your retirement. This is the time when active planning should begin. This means running more realistic scenarios about retirement goals. Focus on paying off all types of debt, including the mortgage. Pay attention to where your money goes so you can accurately calculate your living expenses for retirement.
Think about what types of income you can create besides a paycheck. Do you have a skill that brings in extra income? Is there something you know that you can teach for a fee. Maybe real estate investing has been appealing to you. Or maybe you have a huge home that you can downsize to free up more money for your retirement dreams.
And think about what types of spending you can easily cut back if you decide you want to increase your retirement savings because you might be a tad short.
You may have dreams or goals that you have put off for a long time because you didn't think the time was right to be selfish. Before age 50, think about what you always wanted to do and make a real plan to do it. You may want to do it before you retire while you still have a good income. Or this might be the thing that drives you to retire early.
Around age 45-50, you should start thinking about long term care insurance. This is important coverage to protect your assets should you or your spouse become ill and need full-time nursing care. Make a note in your notebook on the To-Do list page, AND on your everyday to-do list.
Don't forget to update the core retirement planning tool, the retirement budget spreadsheet, with a line item for this expense.
It may be time to consult a fee-only financial planner, too. This is a good idea in case you haven't considered all the options you may have for structuring your income in retirement. It will be especially important if you hope to retire early.
This financial planner will contribute important additions to your retirement planning tool box: an analysis of your net worth, projections based on your retirement goals, and recommendations for insurance you may need.