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It amazes me that people so close to retirement can spend so little time preparing and planning for it. They say they're going to retire. They have a date set for that retirement. Yet they've really spent no time really drilling down to the root issues involved and the requirements needed to successfully make the transition from full-time work into full-time retirement.
My mother, for example, has taken the first few steps toward retirement planning, yet has until this point, remained watching from the sidelines when it comes to truly delving into the process and starting to crunch the numbers needed to tell her just how feasible retirement at a particular age really is. Therefore, I've jumped in to assist her in creating a plan that allows her to run a variety of scenarios and begins to give her some sense of where she is at and where she is headed when it comes to her retirement planning.
Assets
Getting a grasp on the assets available in retirement was the first step I took when building a plan to assist my mother in better understanding her retirement options and situation. From savings and certificates of deposit, to retirement accounts and Social Security, we came up with totals for each. I left out real estate since, although it is an asset, it's not easily convertible, and it won't be something she's expecting to draw payments from by way of sale, rent or a reverse mortgage.
Expenses
Expense categories were areas that I really had to sit down and go through with my mother. Building an asset sheet was easy. We just looked at account statement and allocations. Compiling expenses can be more difficult though since they can change on a monthly basis, with the seasons (utilities, home maintenance, yard upkeep costs, etc.), and there isn't always a long running record upon which to base your assumptions.
This meant that we had to use more generalized estimates for certain areas, while relying on credit card statements and regular bills for other expense categories. I tended to estimate high on expenses such as travel, healthcare, food, and home repairs, since these areas can have higher and more unexpected increases than things like utilities, car and homeowner's insurance, and similar, more stable costs.
Differential
By whipping up a quick spreadsheet to compare income from assets (interest, dividend payments, and social security) to outflow from expenses, we got an idea of where we stood without having to dip into account balances.
After having done this, we determined that we would be several hundred dollars short each month. While we tended to estimate high on expenses, and low on retirement account growth and dividend payments, I feel it's better to plan for the worst and hope for the best when it comes to retirement planning.
A Draw Down Plan
With this negative balance, we then reviewed a 25-year draw down plan that I had developed for my mother's retirement investment balances. To ensure my estimates remained realistic, I took only her current investment totals (keeping growth rates at zero for items like stock-based retirement plans, since who knows what the market will be doing over the next several years) to create this plan.
While she still has several years until retirement, I again felt better estimating low and having the numbers come back better than expected when the time actually comes. The monthly drawn down balance came back higher than we needed to bridge the gap between income and expenses, which creates a buffer to help protect against unforeseen or unexpected costs.
Extra Income Sources
Compiling a list of extra sources of income or possible income streams can be a good way to get a parent thinking about backup forms of income if needed. Such items can range depending upon the parent, their skills, abilities, and needs.
For my mother, the list comprised having garage sales (something she excels at and enjoys), opening a booth at a nearby antique mall, and selling her art (she is an artist and art educator). Such items could help not only bolster her income if or when needed, but provide interesting and profitable hobbies during retirement.
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