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4: Make a Plan

Where are you in your retirement planning? You’ve outlined what you would like in an ideal retirement and reviewed eight key areas that will need to fit together as they all influence your retirement decisions. Can you identify any areas that need immediate attention?

Use this section of the course to begin laying plans and checking in with your actions, depending on how near or far retirement is for you. Then you can align those areas to goals you have for your ideal retirement state.

When Can You Retire?

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The Social Security Retirement Planner

If you’re looking for an easy, all-in-one reference for your retirement planning, check out this planner from the Social Security Administration.

It all boils down to when you can afford (and are mentally ready) to retire. If you haven’t already done so, estimate your anticipated life expectancy and your full retirement age (FRA). Now let’s crunch the numbers.

1. Estimate Your Social Security Benefits

The Social Security Administration uses a complicated procedure, based in part on your FRA, to determine the amount of your full monthly benefit. You can work through the math to estimate your benefit:

  • First, restate your earnings in today’s dollars using an index factor.
  • Second, identify the top 35 years of earnings and divide by 420 (the number of months in 35 years) to produce your Average Indexed Monthly Earnings (AIME). Unfortunately for parents, caregivers or others who haven’t worked full-time for 35 years, this step reduces your monthly benefit.
  • Finally, apply the Social Security Administration’s benefit formula to come up with your Primary Insurance Amount (PIA or monthly benefit).

Here is a handy summary from the Social Security Administration to follow. Simple, right?


The Easy Way!

Fortunately, there is an easier way to estimate your monthly Social Security benefit. Beware, however, that this is only a rough estimate.

Try it out at Social Security Quick Calculator. Go ahead, play with the numbers to manipulate your retirement age just to get a good idea of what happens if you retire earlier or later. You can also view your benefit in today’s dollars or adjusted (future) dollars.

2. Inventory Your Existing Retirement Plan Assets.

Use the Retirement Plan Inventory Worksheet to list all of your current retirement savings. Estimate fund balances at this current time or use your fund statements to provide actual numbers.

(Revise this inventory at least once a year to monitor your funds and compare to your needs for your retirement lifestyle.)

3. Project Your Monthly Income Over Your Retirement

  • Use your current retirement savings, and project your monthly income in retirement. Use the Lifetime Income calculator from the U.S. Department of Labor to help you.
  • Add this figure to your monthly estimated Social Security benefit.
  • Complete this sentence:
    With my current retirement savings and Social Security benefits, I can expect a monthly income of $_____________ when I retire.

4. Reflect on Your Retirement Plans

Now that you’ve completed all of these computations, think about these questions:

  • Can you afford to retire when you expected?
  • Do you think your ideal retirement plans will need to change?
  • Is there anything you need to do to better prepare your finances for retirement?
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Remember, it’s OK if the answers surprise you. It simply means you need to consider where you are in life and what steps you can take now and in the future. Later you’ll get a chance to outline what you can do.

You always can “retire while working” by starting to do some things you envision for retirement on weekends or using vacation time.

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