by Shelley Seagler
Now is the time of year when many of us have vacation on the brain. After feeling slightly cooped up by the winter cold, you may find yourself dreaming of lounging on the beach cozying up to a good book and a pina colada. But if you’re within 5 years of retirement, taking a slightly different approach to your vacation may be a wiser use of your vacation time.
The National Endowment for Financial Education (NEFE) recommends doing a trial run of your retirement. By actually living your retirement, at least temporarily, you’ll be able to gauge whether or not you’re on track.
Here are the five steps the NEFE offers in Think You’re Ready to Retire? Take a Practice Run First:
Envision your retirement. How does a day in retirement look? A week? A year? Do you see yourself wandering the country in your RV or staying home to care for the grandkids? Does your spouse share your vision?
Estimate the cost of your retirement dreams. Track your current living expenses and use this information as a base. From the base, subtract expenses that you expect to disappear by retirement, such as a mortgage, car loan or work-related costs. Add expenditures that may increase when you retire, such as money for travel and hobbies, medical rates or the cost of caring for elderly parents.
Estimate your retirement income. Start with your expected Social Security benefit. Call the Social Security Administration at 1-800-772-1213, or go to www.socialsecurity.gov. If you’ll have a monthly pension or part-time job, add those dollar amounts. Next, estimate how much additional money you will have saved by retirement, an expected return on your investments and the amount you will withdraw each month. A financial advisor can help you with such a calculation, but as a rough estimate, divide the total amount of your nest egg by the number of years (and then months) you expect to live in retirement. Or, check out NEFE’s Smart About Money Web site, which has several retirement calculators. Go to www.smartaboutmoney.org; click on “Retirement” and then “Helpful Tools.”
Snider Advisors web application, My Financial Plan is an excellent is an excellent tool for you to estimate both the cost of your retirement expenses and income. Plus, it has the added bonus of being free!
Run a Simulation
Use the resulting budget as you run a simulation of your retirement. Live on the budget while you take your RV on a month’s vacation or baby-sit the grandkids for several weekends. Does the money hold up? Just as important, do you (and your spouse) like your retirement schedule?
“Whatever retirement you envision, try to simulate it first,” Beck says. For example, if you want to relocate to a different part of the country after you retire, rent an apartment or exchange homes with someone from that area so you can experience what it’s like to live there. Subscribe to the local paper. Ask the neighbors how they like living there year-round. Learn how much property taxes are, what city services are provided, and the cost of food, housing and medical care. Ask yourself how you feel being away from friends or family.
As part of your simulation, run some worst-case scenarios and think through the “what if’s.” What if you have a health crisis that lands you in a nursing home for several months? What if your investments don’t pan out the way you planned? What if inflation spikes? How would you handle these situations? Would you take out a reverse mortgage on your home to weather the crisis? Tap into the kids’ inheritance? Advertise for a roommate ? Get a part-time job? “The more you can anticipate now, the better prepared you’ ll be when you retire,” Beck says.
Tweak Your Plan
“The great thing about practicing retirement is that you can identify pitfalls and make adjustments before it’s too late,” Beck continues. For example, you might decide to stay at your job a few years longer or gradually step down into retirement by working part-time for a while. You might make it a priority to pay off all your debts before you retire or scale back your travel plans a bit.
Does this plan sound as enjoyable as soaking up some sun? Probably not. But in the long run, using your time to “practice retirement” may be turn out to be one the best vacation ideas you ever had.
