The old adage of “failing to plan is planning to fail” is particularly true when it comes to your future. It is most difficult to hit a goal in life that you do not set. I am a big believer in goals for all aspects of life. When I began my professional career in accounting in 1987, I wrote down my goals and some of them were long-term that took me thirty-five years to accomplish. These are called “marathon goals.”
To illustrate the importance of goals, think about the times in your life that you had thoughtfully planned for an event – buying your first home, birth of your first child, buying your new car, etc. Each of these events required you to define what you desired in the outcome and establish a plan of action to achieve the steps that led to the goal. For example, you wanted a new home while in your 20’s. You realized a down payment of 20% of the cost of the home may be necessary to achieve the level of funding and the interest rate you preferred.
While you were working hard in your early career, you set the goal down on paper and placed it in an area of your apartment where you would see the goal daily. This simple act of visualizing the day you walk into your new home served as a motivator for you to save for the down payment. Finally, the day of closing on your new home has arrived! You are excited and overwhelmed by the process.
After moving your small amount of furniture in your new home, you realize that more furnishings are needed. You identify another goal and set it to paper. Within twelve months you have reached this new goal of purchasing your furniture throughout the new home. This process continues throughout life.
Consequently, many individuals work extremely hard in accumulating their wealth only to fail to carefully plan for the distribution of their net worth when they expire. Over my thirty-five-year career as a CPA and Certified Financial Planner® professional, I have witnessed more individuals fail to carefully plan for the transition of their estates and cause their heirs significant hardship and avoidable costs.
Two areas of primary challenge during retirement are healthcare and income. To rigorously evaluate each of these areas it is critical that you understand the application of your resources to resolve these challenges. First, healthcare costs continue to rise more than 8% per year. According to www.plansponsor.com, retirees will spend $315,000 on healthcare costs during retirement after age 65. These costs include co-pays, prescriptions, mobility aids, etc. Due to the size of this cost in comparison to your total budget, it is critical that you maintain a healthy lifestyle if you wish for your retirement assets to last you longer.
The second area of challenge is income. Many of us estimate we will spend fewer dollars during retirement than we did during our working years. This assumption is invalid. Our clients spend an equal amount of funds during retirement as they did while working because they have more time to travel and enjoy the activities, they were unable to do while employed. A plan for cash flow is critical to your facing retirement with all the costs that may arise in life. I often tell clients that one of the worst outcomes would be that you lived longer than your assets lasted.
Retiring for the first time is unnerving for many people. It is possible to feel confident about the process and increase your probability for success by collaborating with a Certified Financial Planner™ professional to create a plan. Make informed decisions and do not guess your future.