7 Eye-Opening Shortcuts For A Simple Retirement Plan In Record Time

(Last Updated On: 09/11/2016)

Here’s the thing:

We live in an increasingly complex society.

If something looks and sounds too simple, then we deem it is not worth our time (and price!).

But we want things simplified for our consumption.

Nowhere is this more true than retirement planning.

If details isn’t your cup of tea, then here’s a step-by-step overview of the retirement planning process.

It provides a solid starting point that beats the doors off procrastination and prevents analysis paralysis.

These 8 steps are summarized without being oversimplified so that taking that first step is easy.

If you need more details (which I bet you will), you can explore the included links later when you’re ready to dig deeper.

Step 1: Visualize your Desired Post Retirement Life

The first and foremost thing in retirement planning is figuring out what your vision for retirement is.

What are you going to do for leisure? How many hours per week you are going to be actively working? What are you going to do?

Your vision of retirement is the necessary starting point because it will determine how much your retirement will cost. You don’t need to worry about the exact figures at this step, so a qualitative approach will do – such as frugal vs balanced vs luxurious.

Which that set, you can then proceed to the following steps, which include budgeting and planning.

Step 2: Save the Retirement Date

Once you have a picture in your head of your ideal retirement, it’s time to pick the date you’ll start living it.

This 2 digit number is the absolute number one priority because without it, there are nothing to plan because all subsequent calculations will depend on your retirement age/year.

The figure that will change everything.

The time you still have to build your retirement nest egg and the number of years your existing savings can continue growing will depend on your expected retirement date.

In short, you can’t estimate your retirement income or plan your savings until you pick a retirement date.

Step 3: Approximate your First Year Retirement Expenses

After you solidify a dream vision for retirement and a date to begin, it’s time to estimate your retirement expenditure.

The first step in this process is to guesstimate how much your plans for retirement will cost, so make a budget.

It is recommended to overestimate because inflation and all the stuff you inevitably miss out will cause you to underestimate anyway. See? This way the overestimation offset the underestimation.

Round up where you can and use your current expenses as a benchmark to adjust from.

Remember – 100% precision is not the point here, but you we have start somewhere nonetheless.

This expenditure figure will probably be as good as it gets until your life scenarios changes as your actual retirement date draws closer.

Lastly, inflate it by 2 or 3 percent annually until the age when you decide to retire in Step 2.

Step 4: Approximate your Retirement Nest Egg Gap

Now it’s time to guess-timate the amount of retirement nest egg needed to to fund your retirement dream.

You do this by matching your projected income to your estimated expenses following these four simple steps:

  1. Consider (if any) other periodical or lump sum cashflow in at the start of retirement such as Social Security or pension.
  2. Deduct that from your total estimated expenses from Step 3 above.
  3. The difference is your income surplus or shortfall at the onset of retirement. Any shortfall must be made up from assets/retirement nest egg/savings.
  4. Approximate the amount of savings required to support the income shortfall by multiplying the annual amount by 25. You’ll need to build this level of savings in your retirement plans and other accounts to retire with financial security.

Based on this step, you now have a ballpark figure of a savings goal to achieve by your retirement date. All that’s left to do is build a savings plan to achieve it.

Step 5: Construct and Execute an Accumulation Plan

Take the shortfall estimate from Step 4 above and subtract your current savings and retirement plan balances to determine your current savings shortfall.

Subtract any non-liquid investment assets like real estate property, if any. Again, don’t need to be accurate, just take a current valuation or conservative market value.

Divide that amount by the number of years until your expected retirement date from Step 2 above to give you the annual amount you must save to achieve your objective.

Let that figure sink it. Digest it.

Is it realistic?

You may choose to revisit your dream vision and corresponding budget if the savings goal is too daunting.

In other words, the retirement savings shortfall can be made up by either of these:

  1. Saving more or
  2. Figuring out how to live happily on less.

Which is is more easier to accomplish is very subjective. Different strokes for different folks.

Some people find happiness on $60,000 per year and need little savings while others need $300,000 per year. There’s no right or wrong answer, but it’s important to note for every $10,000 per year less that you need to spend, you lower your savings required by roughly $250,000.

Many people find it easier to reduce spending by $10,000 per year than to increase savings by $250,000.

There’s no right/wrong answer. Just decide what works for you.

Step 6: Let your Savings Reap the Power of Compounding

 

The investment vehicle to use can be mutual funds, stocks, ETFs or real estate.

The concept that you want to know and implement is asset allocation and portfolio diversification for stocks and bonds at a reasonable cost so you don’t have to become an investment expert.

This could also work well – positive cash flow, income producing real estate with the mortgage financed so you’re free and clear by your expected retirement date.

These are just 2 common options to consider that are reasonable and achievable for someone with minimal investment expertise. And of course, you should always seek qualified professional guidance  such as independent financial planner so your portfolio can be matched to your personal needs.

Step 7: The Power of Now and not Later

That’s it! Retirement planning made easy – just as promised.

You have no reason to delay. Don’t let yourself get in the way of your retirement.

Procrastination is wealth suicide on the installment plan.

The sooner you begin saving and planning for retirement, the process will feel like taking a stroll on the beach. If you don’t start now, you’ll feel like climbing Mount Kilimanjaro without any training.

You can fine tune your retirement plan later as you learn more using the many free resources on this site. The key is to start now.

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