Retirement should be an extension of what you are doing or at least enjoying all your life (lifestyle), and not the beginning of a budgetary nightmare. I am an undisciplined soul with an accountant (CPA, actually) wife. I like to do what I like to do when I like to do it and she keeps the cash flow managed to allow that type of lifestyle. I have said to her many times that I have no interest in retiring if I have to change one iota of this because "we have to watch our money". If she tells me I would have to, then I am not going to retire ever. (That is easy for me to say, because I haven't the slightest desire to even consider it.)
The people I know – relatives, friends and business associates – that have retired are the ones who bring out my fears. The things we have done together are now limited by their budget. Is this because they don't have a sufficient retirement? Not really. It is my opinion that they have never really grasped the importance of understanding their finances and therefore they are afraid of making a terrible mistake that would make them run short before they departed the earth. Who wants to live in fear during the golden years? I would rather not retire. (I actually have said that before).
People retire because they can. They can grab some social security and take their pension and maybe get a little more from their employer for an early termination and that is the deciding factor. They are free. First they have to conquer the monotony and then the fear. Get some stress in your life and the monotony will be gone. Have a financial plan, and there goes the fear.
The plan has to include the proper insurance, the proper income and CASH! Which is generally the missing ingredient. The income you are getting from your retirement package is never enough because of inflation. I know it is inflation adjusted, but that is just a figure, and one that is unrealistic for almost anyone. You need enough cash to see you to 100. You may not get there, but financially you need to figure you will.
If you think you can live on a budget and that the budget is covered by a combination of factors, then simply double or triple it. If the budget of $3,000 a month seems pretty good for your lifestyle, then call it $6,000 or $9,000. If you retire at 65, you need 35 years of this extra budget on hand. That would figure out to be $1,260,000 or as much as $2,520,000. That is a lot of money! Most people couldn't come close to that, they think. I use it as an example because most people are thrilled with $126,000 or $252,000 in the bank to make it through. It isn't enough! Maybe my figure is too high, but a mere 10% of it will lead to a fearful retirement for sure.
That gets me to the conclusion. Look to your house and you probably will have all of the retirement money you will need locked up in the house you have free and clear, or at least pretty close to that. See "Retire the Retirement Plans" August 15, 2006.
I hope you enjoy your retirement if that is what you choose. I for one am off to change the calendars to 16 months and shelve the retirement plans for another few decades!