Friday, October 22, 2010

When should I retire?

We all like options.  Like having a pickup truck and a sports car so we can both haul stuff and drive fast.  Or like having a second home at the beach and another in the mountains so we never need to compromise with the weather.  But options cost money:  the more options, the more money.  Building a financial plan is about identifying which options you want to have available to you at different periods in your life:  is paying for your child’s college important?  Private or Public?  All or some?  Building in the option to pay for all of your children’s educational expenses at a tony college gives you the most options but unless you’re very wealthy, they come at the expense of other options foregone.

The point is that a financial plan is all about prioritizing those options….the “Whens” – as in “When do I want to retire?”, the “Whats” “What does retirement mean to me?” and the “Wheres”.  Deciding on the options that are most important to us and ones we are willing to trade off is the key to defining the “Hows” – to defining your financial plan.

Deciding when you want to retire is a very personal decision that depends on your values, your satisfaction with your current job and your career prospects.  For example Values:

Are you fulfilled doing what you do right now?  Is it where you think you ought to be?  Or would you prefer to be doing something else?  Retirement and work are both a set of activities: you need to decide which activities are most important to you to do with the time you have.

Are you satisfied with your current career?  Do you love what you do?  If so, you may want to do it as long as possible, pushing retirement off.  If not, you may want to move your retirement up so you can substitute something you enjoy for something you don’t.

Even if you enjoy what you do the market for your skills may be on the wane.  What are your prospects for continuing your career?  If they look bleak, perhaps you should plan for an earlier retirement.

Once you’ve decided When you’d like to retire, you need to decide What retirement means to you.  For some people, retirement means sitting on the beach doing nothing.  For others, it means doing what you’ve always done but at a lower level of intensity and pay.  Or you might want to start a completely new career, one that pays far less but offers experiences or fulfillment that you’ve always dreamed about.  You might end up putting all of these options together:  perhaps some part time work early on, pursuing some alternatives that you didn’t have the flexibility to consider while full time and as the years pass, more and more down time.  But whatever your plans, make sure the you think carefully about the What.

Finally Where do you want to retire?  In your current home or in a smaller place?  In your home town or someplace else?  Or maybe all of the above:  your house in the suburbs and an apartment downtown or a place at the beach.  Where you plan to spend your retired years is an important consideration when planning.

When, what and where:  three simple questions that will determine how much you will need to save to meet your retirement dreams.  Your financial planning professional can help you understand the implications of these choices.

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