Many seniors make the mistake of relying on their children to help them with their financial obligations as they age. The problem with this is that your children then have decided control over where you live, how you live, and if you move into an assisted living facility. Being prepared for your retirement is the only way to ensure that you have control over your life as you age, and the most important thins you can do to achieve that is to secure your financial future and make sure that your home can accommodate you as you age. Here are our top tips for planning for the future successfully:


1. Understand Your Retirement Time Horizon


To create the initial basis for your retirement strategy, subtract your current age from the age at which you want to retire. The longer the period between now and retirement, the riskier your investment portfolio can be. Why investments? Saving for your retirement isn’t only about putting money in the bank, it is about retaining the purchasing power of that money over time. The money that you put in the bank today depreciates every day that it remains there, while investment portfolios appreciate over time so that your money retains its value. Even a seemingly small inflation rate could reduce the value of your savings by up to 50% over a 20 year period. The older you are, the less concerned you have to be about inflation. If your plan is to retire in 10 years for instance, inflation will matter a lot less than someone who is starting to save for their retirement in 30 years.


2. Break Up Your Retirement Plan


Many people think that saving for retirement is one lump sum, but it’s actually much easier to plan effectively if you break up your retirement plan into components. Let’s say you want to retire in five years and renovate your home, and travel twice a year. Each of these should be their own separate plan and their own separate saving schedule so that you can have a clear picture of where your money is going. Contrary to popular belief, a retirement plan is an agile thing that changes over time, and you should revisit your portfolio at least twice a year.


3. Determine Your Retirement Spending Needs


Most people who are planning for their retirement think that they will only spend 70-80% of what they are currently spending. This assumption often proves unrealistic, especially if the mortgage is not paid off on your home. More often than not, unforeseen medical expenses will occur for seniors, and it’s important to be prepared for that possibility. The cost of living increases every year, and that proves especially true for healthcare expenses. Retirees also have more free time to travel and participate in leisure activities, which means their rate of withdrawal (how much they are spending per month) may be higher than anticipated.


4. Determine Your Lifestyle Requirements For Your Retirement


If you plan on staying in your home as you age, chances are your home is going to have to undergo a major renovation at some point. The most financially savvy time to do this is while you are still in the workforce, to help mitigate unforeseen costs. If you take on the accessibility of your home before you retire, you no longer have to factor it into your retirement plan. There are many ways to avoid the expense of retirement homes as you age. Renovation can be a perfect solution for some seniors, but others would rather downsize and put that money elsewhere. Whatever decision you choose, it’s best to sort it out before you retire, so that you can have the most accurate picture of what your financial needs will be.


5. Calculate Your Investment Rate Of Return After Tax

According to Investopedia, “an individual who has a retirement portfolio worth $400,000 and income needs of $50,000, assuming no taxes and the preservation of the portfolio balance, is relying on an excessive 12.5% return to get by on.”

When calculating your investment rate, it can be helpful to work backwards, and first, determine your income needs. Once that is determined, calculate the rate of return on an after-tax basis in order to ensure that you will be covered for your full projected retirement requirements.

One of the most challenging parts of creating a retirement plan is balancing between realistic expectations and standard of living. The best solutions are to create a sustainable living environment that is solid, and a financial plan that is flexible enough to reflect changes in the market and your changing needs, whatever those are.