24/7 Wall St. Insights

• Planning for retirement is a critical part of growing older.
• Knowing your retirement runway number is essential. 
• You don’t want to be a burden on your children in retirement. 
• Also: Take this quiz to see if you’re on track to retire (Sponsored) 

Whenever you start thinking about retirement, one of the biggest considerations is when you’ll have enough money not to have to work again. For many people, this number is something they have been thinking of for a long time. 

However, according to a Nationwide Financial study, three out of five people remain unclear about when they will run out of money in retirement. This number tells us that more needs to be done to educate people on creating a concrete retirement plan and budgeting for how much one should be spending annually.

Planning for Retirement

The last thing you want is an unplanned early retirement due to health issues, a potential job loss, or becoming a full-time caregiver. The result is that any plans you may have had for retirement are now for naught, and you have to start from the beginning. The best scenario is that you then think about how you discuss with your partner and or financial advisor how to not run out of money without dramatically changing your lifestyle. 

The best time to ask yourself whether you have enough money to retire is before you retire. If the answer is no, this is why planning becomes so critical, as you need to know exactly how long you have to continue working to hit a comfortable number of savings, passive income, etc. It’s okay not to know what you don’t know, and this is why professionals exist to help you. You can even start with the AARP Retirement Calculator to understand where you are today. 

Understanding Your Retirement Runway

When thinking about this yourself or with a professional, the most important thing to understand, and what 3 out of 5 Americans do not, is how long your savings will last based on income, including your investments and expenses. This is your retirement runway and knowing this number to the penny is not just a good idea, it’s downright essential. 

Of course, there are some facts here that can influence this number. For example, we’re currently living in a level of heightened inflation, which no doubt affects the cost of living. Therefore, you’d want to ensure a cushion exists in your runway to handle any potential inflation impacts. 

Separately, you also need to consider long-term market performance and volatility. While we’d love to say the market always goes up, this isn’t true. The early stages of the COVID-19 pandemic or the 2008 housing crisis wiped out millions’ investments. As a result, many people had to return to work to make up previously earned income lost due to market volatility. 

Building Your Retirement Plan

I am not a financial advisor, so please talk to a professional. It would help if you did so to create a clear retirement plan. With a financial advisor, you should discuss how to handle any 401 (k) you may have earned during your working years, pensions, social security earnings, and any other sources of income you may have during retirement. 

Once you know your potential earnings, you must create a realistic budget based on that income. This budget must include healthcare, discretionary spending like trips or entertainment, and basic living expenses. Knowing your mortgage, rent costs, and car payments is essential for building a retirement plan. 

The bottom line is that without a plan, you may find yourself scrambling in the later years of your life. During retirement, you want to be able to enjoy yourself, and without a plan, the only thing you may be doing is worrying. 

Living Stress-Free

One clear advantage of planning for retirement and knowing your retirement runway is lowering the levels of stress you have post-retirement. This isn’t just about anxiety but actual health concerns that may be alleviated if you have adequately prepared for retirement. 

Less stress means a happier marriage in your golden years, more time to spend with children and grandchildren, and not being a burden to these same children. You want to be the cool grandparent, so with good financial planning, you should have some disposable income to spoil your grandchildren. 

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