Everybody needs to plan for retirement. Unfortunately, too many people stick their heads in the sand and just hope everything works out. This is not a good strategy. Research shows that most people have no idea when they can retire comfortably. Most people don’t know how much they need to save for retirement and many think the number is less than it really is. To prepare for your retirement follow some simple steps.

1. What will you do in Retirement?

You need to write down or document  exactly what it is that you plan on doing in retirement. How much travel do you plan on doing? Will you work part-time? What about major purchases such as a new car, a boat, home improvement, etc.?

By laying out your goals you can then start assigning how much you will spend on them. This is very important when creating your retirement plan. Many people are surprised by how much a small change in spending can impact how much money they will have left each year in retirement.

2. Aggregate all of your Assets

Many retirement and financial planning applications (such as ours) now allow you to import your investment accounts. This makes it much easier to get all of your accounts into one location. It also makes retirement planning much easier since you won’t have to manually input everything you own.

You should also list your other asset such as your home, cars, jewelry, antiques, and anything else that can be sold if you need it in an emergency.

3. Make sure you are Diversified

Diversification in retirement can save you from major market downturns. There are easy ways to diversify these days using mutual funds and ETFs. Vanguard generally has the lowest cost ETFs such as the Vanguard Total Stock Market Index Fund (VTI) and the Vanguard Total Bond Market Index Fund (BND).

There are also hundreds of funds that invest in international stocks and bonds that can help you diversify your investments. In addition, you can select funds that invest in real estate, commodities, and emerging markets.

4. Social Security Benefits

Everybody needs to set up their Social Security account on the Social Security Administration (SSA) website. Once set up you can view your projected Social Security benefits. It is important to point out, because the SSA doesn’t mention on their website, that the benefits they show are in today’s dollar. They do not project them using any inflation numbers. So if you want your actual projected payment when you start receiving benefits, you need to add in your inflation assumption.

You will also want to think about delaying Social Security benefits until you turn 70. You will get a large boost in the payments (about 24%) compared to if you take Social Security at your Full Retirement Age (FRA) which is age 67 for most people. Delaying can make sense if you believe you will live past age 80.

5. Project Health Care Costs

Health care can be very expensive, even once you are on Medicare. Many experts project that each person will spend about $15,000 per year on medical expenses once they go on Medicare. There are premiums, co-pays, and deductibles that must still be paid. Many people think that health care is virtually free once they turn 65. This is a mistake and can lead to bad decisions when it comes to retiring and spending.

6. Create a Budget

Creating a budget is one of the most important things you can do for retirement planning. Make sure you download all of your spending to a budgeting app or at least to a spreadsheet. You can then start seeing a pattern of how much you spend each month.

Be sure to take out any spending that won’t be there in retirement, such as spending on kids that won’t be in the house or a mortgage that will go away before retirement.

7. Prepare for Emergency Spending

Make sure you have enough of a cushion in your retirement plan for emergencies such as long-term care or other expensive medical issues. Long-term care is the biggest concern for many because Medicare does not cover it.  A nice facility that would have to help you throughout most of the day can cost over $75,000 per year.

8. Update Your Retirement Plan Periodically

Make sure you keep updating your retirement plan every few weeks. This includes updating your budget and your investment balances. This way you can see how you are doing and if you are projected to run out of money. It can also help keep you on track in terms of your budget and general spending.

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