Retirement Planning is a subset of financial planning that focuses on creating financial independence from working.

Achieving a financially independent retirement is the objective of much of the financial planning that takes place during an individual’s working years.  It is never too early or too late to begin financial planning for retirement.  While retirement planning is, to a large extent, all encompassing, the financial aspect is a key component.  Unlike most aspects of general financial planning, retirement planning is not a finite goal.

Saving for a child’s education or a vacation has a beginning, middle, and end to the objective, whereas retirement planning is fraught with variables, assumptions, and indefinites.   Another fundamental consideration for a successful retirement is continued satisfaction with one’s lifestyle and activities.  Does the individual want to keep working on a part-time basis, or are there other meaningful things he or she wants to do, such as volunteer work, political activity, or increased involvement in community or religious activities?  Many times, when there is a stay-at-home spouse, there are also territorial disputes when the working spouse is home full-time, another reason is to plan for postretirement activity or purpose.

While people may know when they would like to retire and how much they would like to spend annually, the planning necessitates making certain assumptions as to life expectancy and unforeseen costs such as medical and long-term care needs.  These contingencies are difficult to forecast.  Issues that require thought and planning include when long-term care may be needed and for how long.  For a couple, they must also consider how the healthy spouse would be affected and whether he or she may need long-term care as well.  The effects of taxes and inflation also are very important factors to consider in retirement planning, and again, certain assumptions apply to these future projections.

Retirement planning can be difficult emotionally.  People generally spend the majority of their adult lives accumulating assets for retirement.  When that time actually arrives, they often find it difficult to begin spending those assets when they no longer have a regular paycheck coming in.  Many people find that when they begin the retirement planning process, they are faced with more and more questions, which can result in “planning paralysis.”  It is essential to begin planning with well-thought-out objectives and a checklist to help move the process along.

Retirement planning begins with determining how much one anticipates spending and the sources for any fixed income such as pensions or Social Security.  Once this has been determined, it also helps to know how long these income sources will be needed.  Life expectancy is an extremely important factor to consider, although it is hard to project.  Considering mortality tables exclusively in projecting a client’s life expectancy is a commonly made mistake.  This technique sets up a 50% chance of failure, as life tables are based on the average individual.  Family history and the individual’s health should also be considered in establishing a basis for projection.  Even then, there are many unknowns, such as the very real possibility of what they would do if they live that long, or longer.  Many older people would prefer to have funds left over at the time of their death, instead of outliving their financial independence.

Retirement planning, done with the appropriate care and attention, can help workers and their families plan adequately for the future.  Although there are never any guarantees, by planning ahead older workers can enhance their own financial security in retirement and prevent their needs from becoming a burden to their children – two oft-expressed concerns of older adults.