Are you financially closer to retirement than you were at this time last year? Answering this question can help you monitor your saving and investing progress and provides information that you can act on. Here are some suggestions for tracking your yearly progress toward retirement.
[See 10 Key Retirement Ages to Plan For.]
1. Has your net worth increased? Your net worth is a number that provides a big picture indication of your financial progress. Ideally, as you approach retirement, your debts are decreasing, your retirement investments are increasing in value, and your other assets are not dragging you down. If your yearly change in net worth is positive, good for you. If it is not or if you don’t know, it is time to take a serious look at your current spending and your retirement plan.
[See 3 Reasons to Pay Off Your Mortgage Before Retirement.]
2. Has your yearly spending declined? Some experts say you should plan on spending as much or more in retirement as you do now. But when you stop working for income, your investing and saving expenses will decrease. Beyond that, there can and perhaps should be a general downsizing of other expenses, including housing, taxes, and discretionary costs that can be reduced through financial discipline. Do you really need a land line phone or a smart phone data plan? Will watching every premium movie channel ever invented boost retirement contentment? There are many ways to decrease your annual spending and starting now will get you closer to your retirement finish line.
[See 5 Benefits of a Second Home in a Retirement Plan.]
3. Has your predicted retirement income increased? Being financially ready to retire means you are able to produce a retirement income that will support you and your spouse for the rest of your life. If the reason you are not retired now is that you cannot pass this test, then you must track your annual progress towards this goal. This is not as difficult as it seems. The first step is to estimate your Social Security retirement benefits using your annual Social Security statement or the SSA online estimator tool. If you will have pension income, include that predicted benefit level as well. Then, add up the total current value of all of your retirement assets including stocks, bonds, CDs, and even your home equity if you will downsize. Plug that total number into an annuity calculator, as if you were buying a life income annuity today with your entire retirement nest egg. Add up your predicted Social Security, pension, and annuity payments. Has that predicted income level increased compared to last year? If so, you are making progress.
If you have not been measuring financial progress toward retirement, start now. Calculating these measures annually can make it easier to track and manage your retirement finances.
Mark Patterson is an engineer, patent attorney, baby boomer, and author of The Failsafe Retirement System. He blogs on matters of personal finance and retirement planning at Tough Money Love and Go To Retirement.
No comments:
Post a Comment