Dreaming about retirement ?

Now it’s time to dream. If money were no object, how would you like to spend your retirement years? If you are married, sit down with your spouse and brainstorm your ideal retirement together. Most importantly, have fun with this task.

Would you like to take a trip around the world? Maybe you’d like to buy a home in the country to get away from it all. Or, you may enjoy living at the beach. Whatever strikes your fancy, add it to the list of your dreams. Don’t edit as you go along. Put everything down at this point. If it’s easier or less pressure for you, post the list in a convenient place and add to it throughout the week as ideas pop into your head. Remember this should be fun, not work. Don’t get stressed trying to think of everything. We’re not etching this in stone. You can revise the plan later in life as your priorities change. Once you have your list, put a number next to each item. Place a five next to the things you absolutely must do. Put a one next to the things that you would not miss terribly if you were not able to get them done. Use numbers two, three, and four for items in between those two points.
Here’s a sample of what your list should look like.

Dreams      Rankings

Alaskan Cruise               5
Estate in the Country  4
Start My Own Business               5
Buy a Boat   2
Retire at 55   3

Now reorder your list, placing the “5’s” on top, next the “4’s”, then the “3’s”, then the “2’s”, and finally the “1’s”. That wasn’t so hard. Now you have a list of your retirement dreams and how important each one is to you and your spouse. Why did I put you through this exercise? Before you can even start to develop a plan you need to know the critical items for which you want to plan. How can you develop a budget for retirement if you don’t have some idea of how you want to live during that time period? Of course, as you grow older and get closer to retirement your dreams and desires could change. That’s not a problem, just step through the planning process again and revise your needs based on the new goals. In fact, as you’ll read often, it’s best to revisit your plans yearly to be certain you are still on track and there aren’t any major changes in your life that could have an impact on your retirement goals. Each of these goals will have a different impact on your planning process. We’ll take a look at some questions you must answer. Your answers will affect your money needs during retirement.

When Do You Want to Retire?
The first big question: When do you want to retire? Your financial needs will vary greatly once you figure out the answer to this question. You may even want to develop budgets based on all three options-retire early, retire on time, or delay retirement as long as possible-to see what you can afford to do.

Retire Early
Retiring early sounds great to many people until they consider what it will mean financially. Unless you are entitled to some kind of early retirement package from your place of work, you will have to drain your savings to meet all costs. Rather than your hopefully sizeable portfolio building steam, its growth will stall as you begin draining it.
Assume Government Pension isn’t even a possibility until after sixty. If you decide to start your Pension before your full retirement age, it will be significantly reduced, and this reduction is a permanent one throughout your retirement years. So, how much of your Pension benefit is at risk if you decide to retire at age sixty-two? If you were born before 1937, the reduction in benefits would be:

* At age 62: Your benefits would be reduced 20 percent.
* At age 63: Your benefits would be reduced about 13 1/3 percent
* At age 64: your benefits would be reduced about 6 2/3 percent.

For people born after 1937, the reductions are higher; how much depends on your year of birth. I just wanted to give you an idea of what is at stake if you retire early. Medical costs can be one of the biggest deterrents to early retirement, even if you think you have enough saved to live on otherwise. Not only are private medical insurance plans very costly, frequently topping $1,000 per month, if you have significant medical problems you may have trouble even getting coverage. Or, you may find that some medical conditions could be excluded from coverage completely, increasing your out-of-pocket expenses dramatically.

Retiring on Time
This is self-explanatory.
Delayed Retirement
Waiting to retire may be just what you need to stretch your retirement savings. This is often the case with self employed professionals who have self managed pension plans. Not only does your money get to grow for a longer period of time before you start drawing it down, your Pension benefits may be permanently increased as well. There is a point, however, where it makes no sense to wait any longer to begin collecting your pension. Once you reach that age, your benefits won’t increase any more if you wait and there is no penalty if you want to keep working anyway. In fact, as I mentioned earlier, you can continue working once you reach full retirement age without risking a benefit reduction. Now you understand why the date for retirement is so critical to budget planning. The next most critical decision is where you want to live.

Where Do You Want To Live?
The first big question is whether you will want to continue living in your current home or you will definitely want to move out of it. You may wish to stay in the same general location, but simply find something smaller that will be less costly and easier to maintain, especially since you hopefully will be providing living arrangements for only you and your spouse. Another option will be to move into a retirement community and use the assets from your home to buy into that community. If your children have relocated, you may choose to move closer to them. Or you may just want to move to a more tranquil environment. What ever your choice, there are many financial options to consider.

Your Home
First, of course, you must decide whether to keep or sell your home. For many people, their home is their largest asset. Sometimes, its value is even more than what they have saved in their retirement portfolio. Even if you decide to keep your home, you may want to consider accessing some of the assets you’ve built up in that home in order to afford your retirement plans. Be certain you understand the implications if you choose to take any kind of equity loan on your property. Remember, you won’t get much in the way of raises in retirement. You’ll essentially be living on a fixed income. If an emergency comes up and you can’t make a loan payment, you could risk losing the home.