The COVID-19 crisis has been devastating to the personal finances of many Americans. However, there is one way that experts say the pandemic has actually helped some people better prepare and learn how to retire.
According to a recent survey conducted by Charles Schwab, there is a bit of a silver lining in the pandemic. The survey found that roughly “63% of aspiring retirees say COVID-19 has made them more focused on developing a clear financial plan for retirement than they were before.” Of course, coming to that realization is no guarantee that they follow through, but if they do, it could make a big difference in their quality of life in retirement.
The survey also revealed that only about 33% of the aspiring retirees who responded said that they had a written financial plan for their retirement goals. That leaves roughly two-thirds without a concrete idea of how much they need to save for retirement or how they’re going to reach their goal. Here is what the well-known financial services company suggests about developing a written retirement plan.
According to Schwab, you need to know the following things to create your written retirement plan:
- When you plan to retire
- How long you think you’ll live
- The amount you believe you’ll spend annually in retirement
- How much money you expect to receive from other sources, like a pension, Social Security, or 401(k) match
Obviously, you can’t determine any of these for sure, so you have to rely upon estimates. First, just choose when you’d like to retire. You can always adjust this age later if you realize you cannot afford to retire on your chosen date.
Secondly, plan to live to at least 90 unless you have a health condition you believe will shorten your life. You don’t want to underestimate your life expectation, because that could cause you to save less than you actually need.
You can use your current spending as a baseline when estimating your spending in retirement. However, you should think about how your life will change between now and then.
Remember, if the COVID-19 crisis has gotten you to look more closely at, and plan for retirement, that is a good thing. However, understand that, a retirement plan isn’t something you create once and never look at again.
Your goals for retirement might change over time. You also may be able to save more or less in a certain year than you’d anticipated, and that could affect when you can afford to retire. Each year that you inch closer to retirement, you should rethink your retirement plan.
Has the coronavirus impacted your retirement plans? How so?