SITUATION: I just had the realization that I will be retiring in less than two years. After spending several sleepless nights, I began asking advisors for help. Everybody wanted to sell me investments and/or insurance. What do I need to do to determine if I’m ready to retire at my current lifestyle?
Dozens of questions need to be answered in the process of answering your question, such as;
Which money do I spend first?
What percent of income should I replace in retirement?
How will my spending change over my retirement?
What will my health care costs be if I retire?
Do I need to protect my assets from Long Term Care costs?
Should I pay off my mortgage in retirement?
How long will my money last in retirement?
Retirement planning is much more than calculating the distributions from investments at some predetermined distribution rate. In order to properly answer these questions, one must first assess the current flow of all their income, expenses, taxes, insurance, and debt service. A projection of the same factors in retirement will provide the retirement income needed to cover all retirement expenses. Any short fall of revenue must be made up from investment accounts. Once this has been determined, asset longevity can be estimated.
Planning comparisons can be prepared to determine if debt should be paid off, the impact of income taxes based on which accounts are access for retirement and the impact of large or regular expenses such as additional travel, health insurance or other expenses.