For many people, the most important difference retirement makes is that they have a sense of control over how they spend their time. If they can feel equally confident that they have control over their finances, the stage is set for a rewarding retirement. But while taking control of your life may not require prior planning, taking control of your finances does.
FREEDOM FROM WORK
If you add up the hours you spend on the job, typically 80,000 over 40 years, or almost 25% of your time, there's little question that retirement can be liberating.
You probably won't have much trouble filling up the time, either with the things you've been postponing or with new interests. In early retirement in particular, you may find you're putting more mileage on the car, spending more time with family and friends, and just generally enjoying yourself.
FREEDOM FROM WANT
But if you don't have the income to cover your regular expenses, and enough extra to afford what you enjoy, your new leisure may just mean more time on your hands — or going back to work.
Though only a small percentage of retired people are truly needy — about 10% of that population, most of them elderly women — many retired people find themselves short of income, or worry that they're going to run out of money. In most cases, that's because they don't have enough sources of retirement income.
There are some things you can do to help avoid finding yourself short of cash. You may want to consider some or all of the following. But remember, there are no guarantees with investing. You may make money, but you could lose money, too, especially in the short term.
- Invest to the limit in employer-sponsored retirement plans such as SIMPLEs, 401(k)s, 403(b)s (TSAs), or various government plans if you qualify to participate
- Set up your own retirement plan if you work for yourself or have a small company
- Put as much as you can into IRAs
- Consider other tax-deferred plans such as annuities
- Reinvest any earnings from taxable investments
FREEDOM FROM WORRY
Thinking about retirement often makes people nervous, even those who feel they've done a good job of putting away money for the long term. One of the reasons is having to make decisions about drawing income from different sources.
What's even worse, it may be hard to get concrete advice. For example, you may be asked to choose among a half dozen or more payment options for your pension, each producing a slightly different monthly amount. Anyone you ask will have an opinion about which decision makes the most sense, but there's rarely a right-or-wrong answer. Do you take the largest amount you can? Do you spread it over your spouse's lifetime? Do you take a little less, with the guarantee your beneficiaries will get a lump sum amount if you die within a few years? You'll probably want to get expert advice to help you sort through the possibilities.
Drawing income from other resources, like IRAs, mutual funds, and annuities, will require decisions, too. Sometimes you can change your mind about how you take income, but often your initial decision is irrevocable, or fixed for your lifetime.
The only real solution — other than trusting your financial fate to the equivalent of a game of darts — is learning as much as you can about how the different investments can help meet your retirement goals.