Retirement Planning

Retirement is a distant proposition for a majority of people. It is not something they think deeply about or plan for - which can be a huge mistake.

It is widely assumed that retirement will be somehow taken care of by Social Security, personal savings and pensions. This is dangerous assumption, and one that leads people to be complacent about their retirement life challenges. For one, the average retiree gets about 40% of pre-retirement earnings from Social Security. Second, the savings rate in the United States is very low – around 1%. Finally the pension plan at most organizations has shifted from a defined-benefit plan, where one was assured of a pension check for a predefined amount, to a defined contribution plan, where returns are not guaranteed.

Some Hard Truths

Most people are unaware that the age when you begin drawing up on Social Security affects the benefits. If you were to begin at age 62, you get a reduced benefit. With retirement age being pushed from age 65 to 67, full benefits are derived only at 67. Can you afford to wait?

Our life expectancy has risen tremendously compared to that of our grandparents. As per the 2006 Social Security Trustees Report, a 65-year old man is expected to live to 82.1 years and a 65-year old woman to 84.7 years. As the retirement phase expands you need to plan to make your money last longer.

Financial experts estimate that you need 70% of your pre-retirement income to match your current lifestyle in retirement. Add hobbies, travel and other expenses and you arrive at a higher figure.

Inflation can wreak havoc with your retirement income if it is not factored in your retirement plan. As an example, with an inflation rate of 3%, if you retire comfortably at age 60 with an annual income of $40,000, by the time you hit 80, you will need $72,000 to match the same standard of living. Higher property taxes and cost of living, if moving to a new location post-retirement, can significantly push up expenses.

Good health as well is not guaranteed. Medical problems can cast a huge shadow and healthcare expenses can upset your calculations completely. The health of your spouse or partner impacts your retirement fund.

Given these rather sobering facts, is it not time you planned for retirement?

Fine-tune your retirement plan.

Saving for retirement is a long-term strategy. Begin by figuring out how much you need to live comfortably after your retirement. Factor in all the bills, loans and mortgages and kids’ education expenses you need to pay for after retirement. If you plan to travel and/or relocate post-retirement, add in the cost estimates.

Now look at how much money you currently have. What are your investments and how are they doing? Do they keep up with inflation? Have you invested in a lot of high-risk instruments? Do you have a pension plan that pays income for life? Consult a financial planner on the best mix of investment options for your needs. Your money needs to last as long as you do.

Get a grip on the gap between your post-retirement needs and current state. If it is substantial, you need to start saving a lot more. Consider working beyond your retirement age. An AARP research report revealed that 70% of people interviewed expected to continue working after retirement. If your health permits it, why shouldn’t you?

You need to retune your retirement plan as the years flit by. Ensure you stay on top of your finances. Cover all possibilities and seek out professional advice - retirement is no time to make mistakes with your money.

A comfortable retirement is what we all dream about and hope for. Just don’t leave it to chance.

...to see an advisor near you about your Retirement Plan!