7 steps to a simpler retirement

by Jim Sloan

Many of us envision a retirement of relaxation--sleeping late, puttering around the house, play golf and frequent travel.

And retirement can be all of those things--provided we have put enough into our investments, retirement savings accounts and money market account to pay for them. Unfortunately, many would-be retirees with even the best savings accounts fail to factor in the many unexpected costs that may spring up.
Here are some ways to anticipate those surprise costs and adequately plan for them:

  1. Expect to live longer that you think you will. You may never had dreamed of living to 85 or 90, but if you've taken good care of yourself and you have a family history of longevity, you could wind up living a decade longer than you planned to live.
  2. Eliminate your debts while you're still working. Right now, your mortgage and consumer debt payments, regardless of the interest rates, probably consume a large portion of your income. Whittle those down or eliminate them altogether, and you'll find you may have enough in your savings accounts in retirement to join a golf club or take that trip to Costa Rica.
  3. Work later in life and keep working during retirement. Retiring at 55 or 60 sounds like fun, but you could be looking at funding 30 years of retirement. Every year you work past retirement age is one more year of building up your retirement savings accounts and one less year of drawing down those savings accounts. Even after retirement, an informal, low-stress job might be a great complement to all those hours of relaxation you have coming to you--and having a regular paycheck will put less strain on your investments.
  4. Learn to cut back now. Accustom yourself to a less extravagant lifestyle now so that it won't feel so strange after retirement. If you're in the habit of eating out three times a week, start learning some yummy recipes you can prepare at home. Find out what it's like to ride a bike to the store for milk and sundries so you can save money on gas.
  5. Plan for unexpected expenses. Most retirement advisors tell you to make sure you will need at least 70 percent of your current income in retirement for each year you are retired. Plan on 100 percent just to be safe. If you take conservative withdrawals of, say 3 to 4 percent each year, you should be OK and have enough money to cover emergencies, such as leaking roofs, or blown engines.
  6. Plan for higher health care costs. According to USNews.com, health care costs become the biggest drain on a retiree's investments. Expect Medicare to cover only 51 percent of your expenses, so have enough in your savings accounts to cover the rest or to pay for a supplement insurance policy to fill in the gaps.
  7. Don't forget you'll still be paying taxes. Your days as a taxpayer don't end when you retire; if you're withdrawing money from your 401(k) retirement savings account or IRA, you'll have to pay taxes on those withdrawals. Using a Roth 401(k) or Roth IRA allows you to prepay some of that tax, however.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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