Sunday, December 21, 2008

5 Questions To Check Your Retirement IQ

And they lived happily ever after
retirement planning reflection prepare
I have crunched the numbers, tried online retirement calculators and perused popular opinion on retirement planning but I am still confused. Do I really need 80% of my current income when I retire? Will I get social security? How much? What if my kids go to Ivy League schools? What should I assume as a normal rate of return? 10% - surely you jest!

Here are five questions which I think provide some insight into what really is retirement all about.

Question 1 - What Does Retirement Mean To You?
Yes – what does retirement mean to you? Is it not working? Is it travelling the world? Or is it spending your golden years with your children and grandchildren? There is the media generated retirement image of vibrant & happy elderly couples frolicking on the beach and then there is you.

What does retirement means to you is a very personal and reflective question. I don’t know about you but it is not an easy answer for me. But it is also a pertinent question because this query starts to demystify what truly we seek. Instead of nebulous day dreaming about endless vacations and not going to work – it forces you to do a gut check about what is it that you truly desire.

Question 2 - What Will I Do Once I Retire?
You may be in a rut, may have grown accustomed to the weekly agony of going to work or chauffeuring your kids around town – but it is a routine. It is something you are accustomed to doing and that means a lot. Have you ever taken a few days off with nothing to do at home. Time slows down – you meander around aimlessly wondering what to do. I admit it – I even miss work!

We are not talking about taking a few days off here – this is it. A whole new way to live your life. So the question is – what is that way of life? Volunteering, social work, part-time work, different career, back of school, something... – the choices abound but which one tickles your fancy and why? Do you really want to do that for the rest of your life? Do you have the passion and interest to pursue that venture? Have you tried it?

Question 3 - Where do you want to retire?
The beach house, a foreign country, maybe a boat … OK – back to reality! You have a job, kids schools, social interests etc which keep you rooted where you are today. How will that accommodation situation change when the kids move out, you outgrow your house and your friends move away.

Will you want to retire somewhere close to where your kids are settled? Probably but that is a big unknown. If you have a desire to seek some other exotic location – how feasible and viable is that option?

Question 4 - What is your financial status?
Sooner or later you have to worry about the number. The magical number of dollars you need to sustain you through your life time. All the above questions should give you a perspective on what that number needs to accomplish or maybe how nebulous that number can be due to the multitude of unknowns. Are you aiming too high or too low? Are you making bad assumptions? Are you factoring in all the unknowns? What about the unknown unknowns?

Once, where you are today and where you want to be is determined then the quest begins to reach that magical goal. Earning, saving, spending and investing strategies are needed to make progress in this space.

Question 5 - How soon do you want to retire?
And finally you have to wonder when? Is retirement a sudden transition from your current lifestyle to a retired lifestyle? Or maybe it is a more gradual transition. What does gradual transition mean – a second career, some part-time dabbling in some venture, trying something new…

Money is not the only consideration for starting your retirement. There are various other facets of your life that you need to consider then contemplating retirement. Day dreaming about retirement is easy – making it happen takes reflection, readiness and motivation.

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