RETIREMENT: READY OR NOT
A Reality Check for Those Retired or Close To It
The clock is ticking. Baby boomers are getting within a 9 iron of their golden years. Most have finally come to grips with the fact that despite the ideal retirement pictured in glossy brochures and commercials — that retirement for most won’t be close to what they envisioned in their earlier years.
All the best laid plans, calculations and formulas have given way to one glaring reality: This is what I’ve set aside for my retirement. Now, how on earth can I make it last?
In other words, it is time for a reality check and a meaningful conversation about your retirement income strategy.
New research finds the magnitude of the retirement savings shortfall in America today is staggering. The U.S. Retirement Savings Deficits could be as high as $14 trillion*. The “American Dream” of retiring after a lifetime of work will be long delayed, if not impossible, for many.
Acting sooner rather than later can greatly improve your own retirement security.
*Source: The Retirement Savings Crisis: Is It Worse Than We Think? The National Institute on Retirement Security, June 20, 2013
Question 1: Do you know how long your money will last if you stop working today, invest your nest egg as safely as possible and try to maintain your current standard of living?
One of the greatest fears of retirees today is running out of money before they run out of life. This is an important question to answer and lies at the heart of Retirement Income Preparation. These answers are even more critical given the difficulties in the financial markets and larger economy that have significantly impacted retirement savings over the last decade. While it would be nice to have a one-size-fits-all formula when it comes to how long your money will last, the truth is there are many factors that go into that equation.
Question 2: Do you know which one of the 567 ways to claim your Social Security will maximize the lifetime benefits?
The Social Security Administration provides you with 567 ways to claim your benefits. The Social Security handbook has 2,728 separate rules governing your benefits, yet they provide ZERO employees to advise you on the best strategy. Choosing the right benefits at the right time could mean tens of thousands of additional dollars in retirement. Making a mistake COULD cost you up to 72% of your benefits. And it’s absolutely critical that you get it right because soon after you claim, your benefits become permanent. There are no Do Overs. Social Security is enormously complex. For a couple, age 62, there are over 100 million combinations of months for each of the two spouses to take benefits.
Source: 44 Social Security “Secrets” All Baby Boomers and Millions of Current Recipients Need to Know – Revised. By Laurence Kotlikoff, Forbes Magazine, July 3, 2012
Question 3: Do you know the proper mix of stocks versus bonds in a retirement income portfolio?
Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame. Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. One of the cornerstones of financial preparation for retirement is that an individual’s exposure to higher-risk assets like stocks should decline as his or her retirement date nears. Since risk level and portfolio return are directly related, your asset allocation should balance your need to take risk with your ability to withstand the ups and downs of the market.
Question 4: Do you know how big of a nest egg you’ll need as you enter retirement if you’ll be retired for 20, 30 or even 40 years?
Have you ever considered how big of a nest egg you’ll need to retire comfortably if your retirement could last 20, 30 or even 40 years? The range of answers is all across the board. The low end suggests you’ll need to have saved 8 times your pre-retirement pay in order to maintain your current lifestyle during retirement, with the high end more like 20 times your annual salary. Estimating what your retirement expenses will be can give you a ballpark figure for the amount of savings you’ll need. It will be imperfect because it requires making assumptions about factors such as how long you will live, what the inflation rate will be and how your investments will perform. Nevertheless, making an estimate is a valuable exercise.
Question 5: Do you know the appropriate spending rate from your nest egg to insure your savings last your lifetime?
If you thought it was hard to grow a nest egg, try living off one in retirement. A lot is written about how to build a nest egg, but not as much about taking money out. Most have no idea how dangerous it is to withdraw too much from their nest egg each year. As baby boomers make the transition from career to retirement, more and more people are grappling with the question, How much can I safely withdraw from my nest egg each year? In today’s low interest rate environment, that poses even bigger challenges. The presumed safe withdrawal rate of 4% has come under fire in recent years. What’s an investor to do?
The Wall Street Journal said a 2% withdrawal rate is bullet proof, 3% is considered safe, 4% is pushing it, and with 5% or more, you risk running out of money, especially if you live into your 90s.
Source: The Wall Street Journal: How To Survive Retirement – Even If You’re Short On Savings
Question 6: Do you know how the rising cost of health care could affect and even decimate your retirement income strategy?
It’s a fact that healthcare costs have increased at a record pace, and many believe they will continue to rise. Everyone knows the old saying about death and taxes. But there’s one more certainty everyone who retires will need to face: the staggering cost of healthcare. Most people don’t appreciate the significant impact healthcare costs can have on their retirement savings. Yet these expenses can overwhelm even the best-laid retirement strategy. Nearly 9 out of 10 are flying blind when it comes to understanding, what could be for many, one of your largest costs in retirement. If you’re like most, you’re underestimating these expenses. Many retirees are not prepared for the high-cost of medical care in retirement when they are no longer part of a company plan. And, too many people believe that Medicare covers most or all expenses. The reality is that Medicare only covers a percentage of your medical bills.
Source: Putnam Investments Lifetime Income Score in collaboration with Brightwork Partners LLC
We have 6 more questions that you should know and answer. To get the next 6 Key Questions Every Retiree Should Answer, Click Here and get the Guide. As a bonus, we also included in that guide 6 Steps you can take to get your retirement strategy on track or back on track! The guide is a PDF file and you can save it or print it and start using it right away!!
Here is one more link to that guide: Link to Guide