Planning Series by Gary Silverman

Retirement: Part One

Up to now, we’ve been concentrating on what your current cash flow looks like. Then we tried to bring it into line so that your expenses are less than your income (in other words, we looked at budgeting). Part of that process was to determine savings you need to be doing each month. This might be for the next car, college, new home, or that dream vacation.

We’ll get back to all that in the next few articles, but it is now an appropriate time to look at your retirement plans. (If you are already retired, your budgeting process and retirement planning process are kinda the same thing—more about that in later weeks.)

First the bad news: what you find out about retirement may mess up the budgeting you’ve already done. You may need to make more room for savings. A lot more savings.

The beginning of your retirement planning is the cash flow or budget you’ve already come up with. (If you missed that step, check out the Cash Flow and Budget articles.) So get it out and begin another column. In it, mark how each income, expense, and savings item will change once you retire.

For instance, in your current income categories, you probably have yours and your spouse’s job. They probably go to zero, since, by definition, that’s what happens when you retire. On the other hand, you may start getting a pension and Social Security income, so add those in.

Expenses can change as well. You might be commuting an hour or so to work every day (not that unusual in our rather large state). So when you retire, your gas and car repair expenses should go down. You may also need to replace clothing less often.

Other expenses might go up. You have more time to explore, so you might actually drive more. You may take more frequent vacations. Just go down the list and adjust each line separately.

Don’t forget health care. If you are going to retire at 65 or later, look up what Medicare and a Medicare supplemental policy will cost you. If you will retire beforehand and the company doesn’t provide retiree benefits (or you are afraid they might cut them as many employers have) then see what COBRA benefits will cost. Don’t forget to take into account changes in co-pays and deductibles.

Gary Silverman, CFP^® is the owner of Personal Money Planning, a financial planning and investment management firm located in Wichita Falls. You may e-mail him at Gary@PersonalMoneyPlanning.com