Retirement planning and design

Having retirement planning is essential to reduce the risk of falling short in the future. The plan will work as a roadmap that will help identify and monitor issues that need to be addressed. Retirement will bring many changes. There is much to do to get prepared. A sample template is included at the bottom of this page.

Everyone in the family should have basic agreement on the goals for retirement. The goals usually center around having enough income to meet the needs. Are they attainable? Will they take a significant time and effort to prepare for. The answers may be easy if you are wealthy and can already afford everything you want to do.

For most, the process will be more stressful. It may take a significant amounts of time and sacrifice. A documented plan will keep everyone informed and on the same page. Striving to reach the goals can be difficult and stressful. Being reminded of the goals helps encourage staying on the path. The desired result is to have retirement plans that work.

The first step is to list possible alternatives for meeting the shortfall. This can include finding ways to increase income or on the other hand, finding ways to reduce expenses. Some possible options that could be considered are:

Retiring and then doing contract or temporary work for current company.
Finding work in the vacinity of home.
Working from home.
Invoking social security benefits sooner.
Reducing and/or raising 401k withdrawals as needed.
Reduce existing expenses for everyday idems.
School and education.
Considering less expensive location for residence.
Finding more attractive medical Insurance options.

To be able to work through these options, the family should explore what is important. What are the values that are held dear? The list below could be a starting point for discussion:

Time with family and relatives
Flexibility and freedom
Type of employment and rate of pay
Pace of life and stress levels
Emotional engagement with work
Family security and talorance to risk
Type of entertainment and vacations

Write down what is important to each member of the family. The values listed can help tailor an action plan that will make sense and be attainable.

The Step 5 gap analysis example shows that the retiree will need to generate about 30% more in income. For most people, this is not trivial. Making the adjustments necessary will take time and effort. It is best not wait until the actually retirement date to begin working an action plan. Most options will take time to develop.

In thinking through the process, the best option may be to work on a temporary basis for your current employer. This would require the least training and adjustment. The salary will probably be higher then you could get starting over somewhere else.

It is best to explore this option with the employer as early as possible. There will most likely be needed adjustments in job responsibilities and/or workloads. A lesser role with fewer hours may meet your needs but it also needs to fit the company. There could also be training requirements as responsibilities change.

If this first option is not viable, the next alternative may be to consider employment with another company - hopefully closer to home. This option is attractive for the shorter commute and better access to home. The pay levels will most likely be less. This option may also require more hours.

This decision comes back to values. Is rate of pay and emotional engagement with work important? Or is time with family and flexibility of higher value?

Another option is working from home. This could be some sort of online computer work. This may fulfill the desire for flexibility. However, finding online employment is not easy. Hours may also be an issue. In most cases, training is required and experience must be built up. Do you have the time?

Another source of income is through Social Security benefits. This could start at 62, but a retiree needs to wait until 66 to get full benefits. In addition, the amount recieved will be adjusted down due to receiving income from other sources.

401k is another variable that will require planning. Commonly, this program is funded through the employer. After retirement, you may be able to continue the same program or you could look at another vehicle for retirement savings. Often times there are financial planning services that can help with this. Take the time to research this area. It is never too early to plan.

At any rate, the assumed goal is to withdraw about 4% annually after retirement. This will most likely allow the funds to continue to grow. Decisions about what types of investments to make will depend on whether investment growth is important or capital preservation.

In terms of current expenses, there are several ways that reductions could be made:

We could sell our house and move to a less expense location.
Take our children out of private schools.
Minimize vacations and home improvements.
We could cut back on cable, internet, and phone.
Reduce intertainment and recreation expenses.

To reduce some of the pressure of generating income, review expenses to see if there is anything that could be reduced. Some items are not optional. Reductions for any individual expense will probably be small. But across all expenses it can add up.

If $800/month is saved, that will translate to $10,000/year less in income requirements. This is easier said than done. It is important to prioritize items and reduce the lowest priority items first. Things like vacations, recreation, or home upgrades may be the first items to reduce. Major items like mortgage payment and the children's education could also be considered. It would be possible to move to an area with lower housing costs.

There are probably things that you DON'T want to do. This would take away some of the key benefits desired in retirement. Still, if these are the only options, it may be worth it to consider some reductions. The goal is to have retirement planned hurdled and conquered.

Your situation, of course, will be different in terms of the issues and options. Going through the basis process will probably be similiar. There may be multiple options that taken together will meet the need. All these things need to be addressed for overcoming retirement shortfalls thru an action planning process. Just create your own spreadsheet and go to work.

It will take time to work through issues and to develop a picture that will make sense. Don't give up. The whole process may be stressful. The future can look uncertain. On the other side, there are many exciting options that can be fulfilling and meet retirement goals. Getting started early is the key.

The following is a simple template for recording and tracking your plans:

Project plan for action items
Start End

Description Date Date Status People involved

Define goal xx/xx/xxxx xx/xx/xxxx

Step 1

.....

.....

Review and modify

Step 2

.....

.....

Review and modify

.....

.....

.....

Step n

.....

.....

Review and modify

Before starting the plan, make sure to share it with family and with others who have a connection to the process. Also, compile a list of potential risks and potential barriers to having success. These can be reviewed periodically throughout.

The completion of each step is followed by "review and modify". By checking this off, you can ensure that the step is completed to everyone's satisfaction. This review could lead to modifications to the plan and a change in direction. The status column can be marked as "in progress" or "complete".

In the next step, "Take Action", an example of this process is given. This process provides an excellent roadmap for a retirement action plan.

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