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Retirement: 5 Things To Consider
Retirement is the centerpiece of financial planning. Retirement represents freedom from engaging in activities that you must do, and allows the freedom to engage in activities that you want to do. That being said, there are a few things to consider when planning for retirement.
1) Cash Flow is King. When considering retirement, it is important to understand your personal cash flow. The cash flow equation is to analyze current and future expenses, versus the income needed to satisfy those expenses. It can be a little difficult to see future cash flows without the proper tools and perspectives. Many people do not understand that cash flows in retirement can be quite a bit different from the cash flows most of us depend upon when working. Many times, the cash flows come from a variety of sources, and can be identified by an experienced financial advisor.
2) Debt can be a severe drag in retirement. If possible, one should consider eliminating debt while working. Debt in retirement (and while working) should be restricted to being utilized on assets that do not depreciate. Revolving credit should be avoided, as should debt incurred on depreciating assets, such as automobiles.
3) Health Care Costs should always be taken into consideration as a potential future expense. These types of costs are variable in nature and unpredictable. A portion of this type of planning needs to be devoted to exploring the longevity of relatives. If one has relatives that are living long lives, take a look at how those relatives are living. Are they independent? Or do your loved ones require continuous care, either in adult communities, or nursing homes. The costs associated with these living arrangements should always be considered.Do you have ongoing health issues that need to be addressed over time? Do you have access to insurance to cover these costs, or do you need to consider supplemental coverage, either via insurance, or by building higher cash flow needs into your retirement analysis?
4) Inflation. Inflation has been somewhat subdued over the last 10-15 years, but still exists. Make sure that any planning undertaken on your behalf not only addresses current expenses, but the concurrent increases in these costs over time. Inflation is not a static statistic, it changes over time. A Monte Carlo simulation of expenses versus income can help you understand the potential for success of your financial plan.
5) Lifestyle Changes. Will you be as active in retirement as you are while you are working? Will you be more active? Would you like to travel more, now that you have more “discretionary time”? Will you move to another locality? If so, will you downsize your living arrangements? These are questions that are very subjective and are some of the wildcards in the retirement equation.
In short, these 5 items need to be taken into consideration when you are planning for retirement. The best advice that can be taken from this article is to find trusted financial advisors that can help you analyze these issues, and help you develop a plan that can adjust as your life adjusts over time.
Retirement is problematic because you do not have an opportunity to rehearse it before “the show goes on”. So, it is usually a good idea to find someone that has helped many people retire and take into consideration the experiences of the other clients they have helped in the past.
We at Deacon Wealth Management have helped numerous clients navigate these waters, and would welcome the opportunity to see if we might be able to assist you in a retirement analysis. Feel free to call us at (540) 371-8585, or check us out on the web at www.deaconwealth.com.