There are 3 steps you can take today that will increase your chances of being able to successfully retire.
1. Use a simple method to track your spending
This is crucial. If you don’t track your spending, you’ll find it very difficult to know when you’ll be able to retire. The reason you need a simple method is because you probably won’t do it if its too much work. Over the last 25 years, I’ve looked at every conceivable method I could find to track expenses easily and I think I found the easiest and most effective. It’s called your bank statement.
Your bank statement gives you all the information you need. It gives you one number that summarizes your total withdrawals for the month. Assuming you pay your credit cards, mortgage and all other bills from your checking account, this one numbers tells you how much you spend every month. Just track that one number and calculate a 12-month average to know if you are on track or not. The reason you must calculate a 12-month average is because some months have greater expenses than other months. For example, you might have property tax due or a car repair expense in a given month. These expenses are usually incurred each year but not evenly throughout the year. Computing a 12-month average makes sure you are taking everything into account.
2. Understand the relationship between spending, assets and income
Bert and Mary have $4,000 coming in every month with pensions and social security. They are both 65 years old. They spend $5,000 on average every month so they are $1,000 short. They have part-time jobs and earn $1,000 so they are covered for now.
They also have $500,000 saved. Without going into a long conversation about investments, let’s assume they earn 4% on their money. That would mean they earn another $20,000 in interest income. Clearly, they have enough to retire – and then some.
3. Plan for Inflation and Long-Term Health Care costs
There are two big landmines that retirees step on. The first is that they forget about inflation. Think about what it cost you to live 10 years ago and how much that’s increased. Inflation is not going to retire just because you do.
The second issue to plan for is long-term health care. You could do everything else right and still jeopardize your retirement if you fail to consider this issue. Not everybody needs to buy long-term health care insurance. But everyone does need to consider how they are going to pay for those costs should they come up.
Retire With more money and less stress!
If you handle these three issues, you will retire with more money and less stress. Have I missed something? What has been your experience with your retirement planning?
About The Author
You can find Neal Frankle, CFP .. Around the ‘Net …
* http://WealthPilgrim.com – This is a guest post by Neal Frankle. Neal found himself in a financially fragile situation at the age of 17. Both his parents passed away while he was still in high school, leaving behind a small insurance settlement. Neal sought out a financial advisor to help him invest his nest egg so that it would help put him through college. Instead, the advisor charted a self-serving course and was on the verge of burning through the money when Neal realized what was happened and fired him just in time to avoid losing everything.
* The experience had a deep impact on Neal and formed in him a lifelong desire to help people learn to make smart financial decisions. Today, with more than twenty-five years of experience in the financial services industry, Neal is an author and avid blogger. To learn more, visit The Wealth Pilgrim
* Twitter – follow Neal on twitter!