Most people look forward to retirement as a time when they won’t have to work. No more getting up early to commute to the workplace, no more spending 8 hours a day at a desk or behind a counter. You’ll be free to… do what?
The reality is, while many people save for retirement and plan on retiring when they reach a certain age, they haven’t thought about what they actually want to do once they stop working. And for many people, retiring triggers an identity crisis: if you’re defined by what you do, what happens when you’re no longer doing it?
But retirement isn’t just about stopping work. It’s about starting a new life. And the earlier you start planning for that life, the better prepared you’ll be when it’s time to embark.
Retirement = opportunity
Retiring requires making adjustments to your current way of life. Those adjustments include:
- Personal adjustments
When you retire, your identity becomes about more than just your job
- Social adjustments
You’ll have to find ways to continue socialising and forming meaningful connections outside of work
- Financial adjustments
In retirement, you’ll be generating income from different sources, not from a weekly or monthly paycheck
Once you see retirement as a new life, you may realise that you have the ability—at least to some extent—to shape that life. You can choose where to live and how to spend your free time.
These three questions will help shape your retirement plan—and determine how much money you need to save:
- When do I want to retire?
- Where do I want to live?
- What do I want to do?
Let’s spend some time on each.
When do I want to retire?
Most people plan to retire at or around age 65, but there are a lot more factors involved than just age. For example, you could retire once your savings reach a certain amount.
As you decide when you’d like to retire, ask yourself if:
- You want to stop working at a certain age
- You want to keep working until your health declines
- You want to wait until you have enough money to retire on
Answering this question will help you figure out how much money you need to save. For example, if you want to stop working at a certain age, you’ll need to plan your savings to reach an amount you can retire on by that age. If you want to wait until you have a certain amount of money, you’ll need to figure out how soon you can achieve that.
Where will you live?
Where do you want to live when you retire? Ask yourself if:
- You want to stay in your current home
- You’re ok downsizing
- You want to divide your time between multiple locations
- You want to live overseas
Once again, which option you pick will determine how your savings need to operate. For example, if you want to stay in your current home, you’ll need to either pay off the mortgage before you retire, or ensure you have enough retirement income from savings and investments to continue making mortgage payments.
If you’re happy downsizing, you may be able to cut some costs that way. If you want to live overseas, you may be able to find a nice location that’s cheaper than your current situation. Or, you may find the place you want to live is more expensive than where you live now, in which case you’ll need a robust retirement budget.
If you own your home, you’ll likely need about two-thirds of your current (pre-retirement) income in order to keep up the same standard of living you enjoy now. But remember to plan for things like home renovations.
Learn more about strategies for paying off your mortgage before you retire.
What will you do?
How do you want to spend your golden years:
- Socialising with friends?
- Supporting your family?
- Pursuing new hobbies?
- Travelling?
Create a savings plan that will allow you to do the things you want to in retirement: whether that’s travelling the world, visiting your family, taking up a new project or just reading all those books on your shelf.
What if your picture changes?
Few things in life go as planned. Your picture of what you want for retirement may change over time, but the important thing is to have a plan. After all, adjusting your savings to fit your new goal is a lot easier than starting from scratch.
