Now Is The Time To Start Retirement Planning

My mother has told me all my life, “If it’s meant to be, then it’s up to me.” When I was in high school trying to make the team or make the grade, my mother always responded with this wise quip, but I didn’t really understand it. Yes, I understood that she meant I would need to study to get an A in math. Nobody was going to give me that A; I needed to study for it. Despite her words of wisdom, I didn’t always take them to heart. Now that I am older, I live by this credo every day, and now that a new year is underway, I think it’s time to evaluate what this figure of speech can mean for your financial future.

Chapman University conducted its third annual survey of America’s top fears. Public speaking used to top this list, but now it seems that toast-mastering is working and America has moved on to more important things to fear:

·         Corruption in the government

·         Terrorist attacks

·         Not having enough money for the future

·         Being a victim of terror

·         Government restrictions on firearms and ammunition

·         The death of people we love

·         Economic or financial collapse

·         Identity theft

·         People that we love becoming seriously ill

·         The Affordable Care Act

I could probably write an entire article with comments on the things America fears nowadays, but for now, I will stick to the fear of running out of money. You could say that there is good reason for this fear. A high percentage of Americans live paycheck to paycheck, and many retirees rely on Social Security for more than 60 percent of their monthly income.

Interestingly, unlike the other items on this list, we can actually do something about this money-related fear. The 12 steps talk about accepting the things you cannot change, the courage to change the things we can and the wisdom to know the difference. We are not able to directly affect corruption in government or terrorist attacks, but we can certainly do something about not having enough money for the future.

One of the first steps in retirement planning is establishing a budget; I call this your “family index.” Financial planners use several different guides when establishing your family index. Some use 80 percent of earnings during your working years while others use 100 percent. I suggest sitting down and determining your budget. If you are looking toward retirement in the near future, establish a budget that you think you can live on and see whether your finances can support it. Determine what your net pension will be, if applicable, and do the same with Social Security; a simple rule of thumb for taxes is 20 percent to 25 percent.

Social Security can be trickier. I suggest using the same tax rate, but you also want to account for Medicare, and a place to start is $110 a month for Medicare Part B. Once we have completed that, we can look toward your savings. Most have heard of the 4 percent rule, and for the sake of this exercise, that is the number we will start with. We will take 4 percent of your total assets and then also try and account 20 to 25 percent for taxes. Once we have completed these quick calculations, we can arrive at a monthly family index.

If you are pleased with your results, the idea is to live on that monthly amount for six months to a year prior to retiring. If you do not have that kind of time, try and make it work for at least three months. If you are not able to live on that amount, then we need to work through your budget, evaluate your investments, find creative ways to cut your expenses, and get out of as much debt as possible.

I know this may sound rudimentary, but many Americans are not doing this. As my mother always says, “If it’s meant to be, then it’s up to me.” Nobody is going to do it for you. There is no time like the present, and the January of a new year is the perfect time to start. Therefore, make that someday today so that when that survey asks you what you fear, you can answer with something more important for you, like “Obamacare.”