27 July 2011

Six areas to work on for your self-reliant retirement

One of the most common approaches to retiring in America is to work for 30 or 40 years, paying into federal programs all the while, then using those funds as the primary source of income during retirement. However, this approach is fraught with uncertainty anymore, and does not embrace a self-reliant philosophy. Here are six areas to work on to prepare for your self-reliant retirement:
  1. Save for your retirement on your own: There are no guarantees for any financial planning, but it seems lately that government programs like Social Security and Medicare are increasingly at risk. They may survive intact for a while longer, although the current debt discussions in Washington DC show that these entitlement programs might undergo significant changes. Those people currently in their 40s (or younger) should probably plan on the possibility that the government programs won't be around to cover their needs in their golden years. TheStreet recently had an article on How to Retire Without Government Programs, which is worth a read as you begin (or hopefully continue) work on your nest egg. Another good resource for saving for your retirement is David Bach's "Finish Rich" series of books; I especially recommend Start Late, Finish Rich.

  2. Simplify to reduce your retirement needs: The simpler your lifestyle, the less income it takes to maintain it. A lower "minimum" income ultimately means that you need less in the bank and/or less interest income every money. Think through how you see your daily lifestyle during retirement. Cultivate inexpensive hobbies, particularly ones that foster your self-reliance. Intentionally work toward a simpler lifestyle now, in order to be freer and more self-reliant as a senior.

  3. Eliminate all debt in your life: Getting rid of your debt now will also give you much greater personal freedom. In particular, not having debt gives you the ability to save a lot faster toward retirement. On the other hand, you could also choose to live a simpler life on a lower income (useful if you don't like your current career and want to change jobs). Of course, another great option is philanthropy; no debt and extra income means that you could through much-needed financial support behind you favorite causes. As I've mentioned before, I believe Dave Ramsey's Total Money Makeover is a great place to start eliminating debt.

  4. Buy the really big items before retirement: This is a corollary to number 3 above. If you buy a house and pay it off, then your only housing expenses in retirement will be property taxes, insurance, and maintenance/upkeep. Owning a home is generally a much better position to be in than renting. This is especially true in retirement, since your rent costs could go up significantly, while your income may not increase at all. Homes are not the only consideration here; you should consider buying new cars (and having them paid off) just before you retire. If you select a make and model with a good reliability track record, and then maintain it well, it may well last you throughout your retirement.

  5. Improve and maintain your health: The best way to cover your health care costs at you get older is to not have any medical expenses. Obviously, we don't have full control over this... at the very least, accidents happen. What's more, there are some who live a totally healthy lifestyle and get sick anyway, and others who don't worry about eating right or exercising, and still live long, healthy lives. Nevertheless, you'll likely maximize your longevity (and minimize your health costs) by gradually weeding out unhealthy habits and cultivating a healthier lifestyle. The vast healthy lifestyle topic is beyond the scope of this simple paragraph, and you'll find lots and lots of opinions on the Web. For what it's worth, I recommend starting with a book by either Dr. Andrew Weil or Dr. Mark Hyman.

  6. Keep working: Although it's counter to "retiring," choosing to stay working may be a good option for some folks (although hopefully not a necessary one, if you work on the above areas). Having a job you truly enjoy, and one that is not mentally, emotionally, or physically draining, may well allow you to work well beyond the traditional retirement age. This is an ideal option for the self-employed, where you can maintain the same self-reliance of working for yourself, but perhaps just reducing your hours. For instance, it's my goal to work on all areas of my life, particularly my career path, in order to be in a position to not want or need to retire.
So, what are your thoughts on retirement? How long do you ideally have before your can retire? Do you feel you're on track for a self-reliant retirement?

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