Baby Boomers are an iconic generation in American history. It is not surprising that they are setting new trends in what retirement means and what they hope to achieve in their post-career years. Approximately 10,000 boomers turn 65 each day. People are living longer, healthier lives: a woman who turns 65 today can expect, on average, to live to 86.6 years, while a man can expect to live to 84.3. Those are just averages – about a quarter of all 65-year-old people today will live past 90.
Today’s retirees are seeking greater personal fulfillment and creating important legacies for their own families – and, often, for larger communities and causes they support. Sound financial planning is crucial to ensuring that a person can comfortably meet all these goals.
1. Get organized
Some people are good at tracking current expenses using personal financial management software. But if that’s not you, start with the information such as a year-end credit card summary or a year’s worth of utility bills. This will help build toward a more complete financial picture of what you will need for cash flow during retirement.
2. Understand living expenses.
As a comprehensive wealth management firm, we know a great deal about our clients: their income taxes, their investments, their planning. But other factors are important to understand, too, such as a good summary of living expenses. To help get the process started, we offer a living expenses worksheet that helps group common expenditures and provides a framework for organizing this information.
3. GO LONG
One of the biggest mistakes people make when planning for retirement is not projecting far enough into the future. This is especially true for Baby Boomers, who are generally healthier, more active and living longer lives than previous generations. It’s not enough to plan for cash flow over the next five to 10 years; think more of 20 to 30 years. Net worth projections will also help you envision what kind of estate you eventually will be able to leave family, as well as identify potential estate tax issues in time to avoid them.
4. Don’t settle for off-the-rack financial planning.
An accurate cash flow projection comes from a process tailored to individual resources, needs, aspirations and legacy. Beware of advice that only takes into account your investment portfolio or relies on canned software. A thorough plan should illustrate what your financial picture will look like at several different points in your life – that way you will understand what’s happening to your assets now and in the future.
5. Follow the money
Cash flow projections are most helpful when they are guiding some of your bigger life decisions: When should you retire? Is now a good time to invest in a second or third home? How much can you afford to set aside for a bequest or gift to a favorite charity?
To reach better decisions, follow steps 1 through 4 meticulously — and make sure you’re working with the right wealth management partner.