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Anticipating and Preparing your Finances for Retirement
(Part 1 - Pre-Retirement Planning)

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For most of us, our retirement will be far longer than we ever imagined. It is also most likely different from what we expected. But, whether it will be a "40 year vacation", or a long financial struggle cannot really be predicted. However, what we can do is, see where we are now, and how our financial resources allow us to create the retirement life we want or can afford.

Because of general financial caution, we have to prepare ourselves financially for retirement as well. This starts at any time before you retire, for at the moment, when you retire, a whole host of financial aspects of your life will normally change.

The First Steps in Assessing your Finances

The first steps will include an appraisal of what you have now. It involves, apart from some other practical considerations, in detail, knowing what financial incomes you have and what you spend. Start with ten practical questions you should answer:

You should be able to answer all these questions with a "YES". If not, you will have to do some work on your current financial or organizational situation. The above questions cover immediate or short term items, whereas the questions below look at the longer term.

	I use credit only for items that last longer than I have to pay for them.
	I have adequate Insurance (car, house or renters, health insurance, life insurance)
	I look up and review my credit report at least once a year
	I calculate my net worth (assets minus my debt) twice a year
	I have clearly stated, realistic and written financial goals for the future.

Some of these questions might be more difficult to answer. For instance what is "adequate insurance" or what are "realistic financial goals". Remember, this is not a test, it is just a means of helping you to determine a safe future, for you and your family. Nonetheless, the more of the questions you can answer with a yes, the better it is for you.

The next step will be, to list exactly what your income and your expenditure is. Since it is likely that both will be relatively regular for each month, write down both by months as shown below.

1.1. A Simple Budgeting Process

Your monthly expenditure includes all items that he and his family require for living. We have not taken into account any income tax or similar windfalls. Use these as an additional contingency for expenditure variations.

You can make these budget tables weekly or monthly. We have, because of the page size available on the internet, made the tables only monthly. Weekly budgets are better, since it will be much easier to control. If you don't know the exact amount of a future expenditure, make a conservative "best guess". Generally in budgeting, be conservative and don't be overly optimistic with your income until you know a specific date, say for a pay increase.

The above is a budget within which two people can easily live. Expenditures for new clothing are limited, and come out of the credit card or the revolving Credit line. You could naturally also use some cash, instead of the expensive credit cards. We assumed that the budget holder will pay down more than the minimum every month (120% of the minimum payment for the credit card, respectively 133% of the minimum payment for the revolving bank credit line). Remember that credit cards charge very high interest rates and you should avoid using them except for very few items.

1.3. The Key Elements to give Attention to, before you Retire

We assume that you do this pre-retirement budget about one to two years before your actual retirement date. This will give you time to adjust your spending patter to the changed income level you will have after retirement.

The points you should pay special attention to are

	Try to pay down all credit cards and revolving credit lines. Because interest rates are high on credit card, they should be your initial target! Unused contingency funds could, for instance be used, to pay off credit cards!
	Try to pay down your mortgage, if possible by accelerating your repayments (for instance pay every two weeks instead of every month or, add $200 every month to your repayments) Watch out, that you do not have any prepayment penalties!
	You might want to consider buying a smaller car, so that your car payments are reduced. At least one smaller car will reduce your car payments and your gas/maintenance bill. Your car requirements will naturally be a function of what you want to do after retirement. If you want to "hit the open road" and travel a lot, then you will still want a sizeable car.
	Do as much repair, upgrade and maintenance work on your house as you can afford, before you retire. This will not only maintain and increase the value of your home, it will also reduce problems later!

This concludes your pre-retirement financial assessment. Now, you should make a plan of how you solve all the problems you have discovered during your investigation. You might not be able to solve all the problems before you retire, but make an effort and address as many issues as you can and as your finances allow.

No you can proceed to your Financial Plan when your Retirement started!

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