The Best Retirement Advice

best retirement planMake a Retirement Plan

The best retirement advice is to fully develop your unique retirement plan.  This takes some effort.  If you have set retirement goals, have analyzed your current monthly cash flows and have been tracking your income and expenses (or have at least started doing that last one), it is time to start making a retirement plan.  This is the plan that you develop to follow through the remainder of your working years leading up to retirement (and beyond in some cases).

(For information on the two above-mentioned important topics, see my Retirement Goal Setting and Personal Spending Tracking pages.)

Note that I didn’t say, “start a retirement savings plan”.  This is because, before you decide how much you can save, you need to know whether you need to change anything about your current spending today (in other words, decisions to make) to get you positioned for your future retirement needs.

So what this really is, is a “life plan”.  Not everything about your life that impacts your finances is going to stay just as it is right now.

  • You may need to take time off, or change your work status in order to care for an elderly parent.
  • You may have a car that is on its last legs, and that will need to be replaced soon.
  • You may have kids needing to go to college.  Or maybe one that is coming back from college, to live with you (indefinitely).
  • You may have health issues now or that are developing, that will necessitate a move to different living arrangements with different costs.
  • The roof may be leaking.

And so on.  Not only do you have to have retirement goals, and the ability to meet your current bills, but you also need to plan for the circumstances that you can foresee right now.  How can a person do this?  There are a couple of ways:

Get Help – Use a Financial Planning Professional

This is a good option, for those that can afford it.  Financial planners are trained in how to develop personal financial plans for others.  They get to know your personal situation and can give you ideas and advice, and access to tools and investment options that might not be available to you otherwise.

There are some down-sides as well to using a financial planner.  The first is, of course, expense.  Professional financial planners can charge between $1,000 and $2,000 for a full financial plan.  If you want advice that is ongoing, you might pay a monthly fee of $100 – $200.  Fees also can be a percentage of the amount of money you choose to invest with or through them.

However, not all financial planners or advisers provide the same services, and not all are as good at it, or as appropriate for you or for your financial situation.  Often they are trying to sell certain financial products, which may (or may not) be a good value for you, be in your best financial interest.  And, you have to be able to get along with them.  And, you may be tempted to not follow their advice once you leave their office.

If you are thinking of using a financial planning professional for this task, this post provides a good discussion of the costs and other considerations you should keep in mind.

Develop a Financial Plan Yourself

No one knows your financial situation better than you, and you can develop a good plan for little or no additional cost.  This method keeps your information private, and tends to keep you more in control.  I’m going to focus on this method, because it is the method I chose and that has worked for me.  This is the most flexible way I’ve found to manage my plans.  When life happens and I need to change something in my plan, I just change it.  I am not beholden to the schedule of an advisor; no detail is too small that I might be tempted not to ask or bother my advisor with it; I can run any number of “what if” scenarios to build more confidence in my plans going forward.

On the down-side, it tends to keep you more in control.   So if you tend to be careless with your money, or start ignoring your plan over the years, no one is going to be there to check up on you (other than maybe a close family member).

Remember that any good retirement plan depends on an accurate assessment of your life goals and knowledge of your current financial situation.  Your goals are things you are shooting to obtain or bring about for you and your family both now, in the near future, and at and after retirement.  They are not generally numerical in nature (I want to have a million dollars in the bank), but are focused on specific needs or desires (I want to be able to travel to another country for a week each year after retirement).  Knowledge of your current finances allows you to understand which direction you are headed financially, and how comfortable you are with your current standard of living, so that you will be able to judge accurately what lifestyle you will be comfortable with in retirement.  Your goals, colored by the knowledge of your current financial situation, will tell you the specific actions you need to take and the numerical details (if necessary) that are needed for you to realize those goals.

There is actually a great way already out there to organize your efforts and keep your data together – this is to use a retirement financial calculator.  Retirement calculators are structured tools that focus you on the most important aspects of planning for retirement, and keep you from going down paths that are time wasters or that aren’t relevant to your retirement plans.  And, they get the math right.

Don’t Try To Completely Do this Yourself!

Note that if you are not up to the task of working with a good retirement calculator to help you develop and document your retirement plan, then I don’t recommend developing the plan by yourself.  I would obtain the services of a financial planner in your area whom you know and trust, or whom someone you know and trust has recommended to you.  Developing your retirement plan correctly, even with a good retirement calculator, will take some significant effort.  Putting together all of the inputs for the calculator to give you an accurate prediction of your nest egg value in the future, taking into account your life plan, can be overwhelming for some people, and there is nothing to be ashamed of in that!  Granted, scheduling and meeting with a retirement planner, answering their questions accurately and gathering the information and documents necessary to completely fill out the planner’s reports, will also take significant work.  But, it won’t be quite as technical for you, either.

Also, if you do develop your own retirement plan, I recommend strongly that you DON’T try to make your own retirement calculator using a spreadsheet or other homegrown tool.  BELIEVE ME, I have wasted a lot of time with this. As an engineer who uses and builds spreadsheets every day I assumed I could do this quickly and easily – but what I found I was just wasting time (weeks) coming up with wrong answers (and being led down the wrong financial paths because of those wrong answers).

Regardless of what they are being used for, spreadsheets are notorious for being wrong.  They are only as good as the person who built them and those that have validated their work (if indeed, anyone did validate their work!).  Oh, I guarantee you will not uncover a bug in Microsoft Excel – that is one of the most QA’d, vetted programs in the world.  But any retirement spreadsheet (really, any application of the program by a user) starts to introduce the possibility of error.  After all, spreadsheets are just that, computer programs with user-supplied data that follow the general rule, “garbage in, garbage out”.

The Garbage-In, Garbage Out Rule

In terms of a retirement calculator, all (including spreadsheet calculators) will suffer from “garbage in” to some degree, because all depend on financial inputs determined by the user of the program, who most often is not an expert in such matters.  When you design your own retirement spreadsheet, however, you also build all of the formulas, formatting, page structure, etc. according to your understanding of how things work.  We all have some level of understanding of spreadsheet construction and personal finance (i.e., from zero to somewhere near but never reaching 100%!), and although I think mine is better than most, I have come to realize that I am not enough of an expert in spreadsheets, finance, tax laws, etc. to be able to build all of these calculations correctly!!

On the other hand, with a fully vetted and well documented retirement calculator program (a software program that you did not build yourself), the documentation will identify how the program is to be used, and how to develop the inputs for your financial situation.  It will ask you the questions and have you fill in the blanks that need to be answered and filled in, respectively, and won’t ask you or have you fill anything that isn’t necessary or relevant.  And a really good one will not let you enter data that is not consistent with the expectations for the inputs needed (for example, you won’t be able to enter 500% in an input box for expected annual inflation, etc.).  And, the vetting by many hands and the experience of many users ensures that the math, incorporation of tax laws, etc. is as close to 100% correct as it can be.

The best retirement calculator for the money that I’ve found is the Retirement Calculator by Expert Software Systems.  I discuss it here.

Feel free to leave me a question or comment on this page below – I’ll get back to you.  Or, check out my Wealthy Affiliate profile page and leave me a comment there.

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