I have helped hundreds of clients plan for their financial future during my nearly three-decade career. It’s been emotionally rewarding to work with them over the long-term and know I helped increase their chances of achieving their life goals because of our work together over the years.
Attending a client’s retirement party is one of those events. It’s always a joyous occasion where people reflect on their past and look forward to their future. Proper planning can greatly increase your chances of reaching your retirement goals and fully enjoying your life.
However, study after study shows most Americans aren’t planning or even saving for retirement. According to a 2015 retirement confidence survey from the Employee Benefit Research Institute, close to 40 percent of Americans aren’t saving anything at all for retirement, and most of the rest aren’t saving enough. In addition, people are living longer in retirement. Advances in healthcare means retirement could last 20 years or more. Taken together, this lack of preparation can have a devastating impact on your retirement years.
People can no longer depend on a lifetime pension from their company or Social Security as their only sources of retirement income. Therefore, a comfortable retirement depends upon the planning steps you take prior to it.
The first step in retirement planning involves estimating how much you will need to save to replace your current income. Old rules-of-thumb no longer apply when determining how much will be needed. For example, years ago, advisors simply told clients they would need to replace 70–80 percent of their income during retirement. The truth, however, is that people today are more vital when they retire than past generations and actually spend more money during their first few years of retirement. Coming up with a reasonable estimate of spending during retirement can go a long way towards the success of your plan.
Rising healthcare costs are an area where people are not properly planning. The common perception that Medicare will take care of all health care costs in retirement is incorrect. Medicare covers a large portion of services, but there are some services that aren’t covered. I plan on addressing the cost of Medicare and other government benefit programs in a future column.
The next step will be determining the sources of your retirement income. Will you have any sort of traditional company pension plan? Does your company sponsor a 401(k) and are you participating? Have you saved money in IRA plans and annuities? Do you have an investment portfolio of stocks, bonds, and real estate that will provide income? Accurately answering these questions will help you anticipate your retirement cash flow and provide guidance to how much you will need to save prior to retirement.
The third and most important step is to implement your plan. Join your company 401(k), or increase your current contributions if you are able. Open and contribute to an IRA account. See if other investment and savings vehicles like annuities or life insurance can help you achieve lifetime income. Consult with a financial advisor to help construct and monitor your plan. Research from the Employee Benefit Research Institute shows people are more confident they will achieve their retirement goals after consulting with an advisor.
Retirement planning today is not like past generations where one could work at a company for his entire career, get the gold watch, and collect a pension for the rest of his life. Proper planning for today’s environment is necessary to have the sort of retirement you deserve.
Anthony N. Corrao is an independent advisor with Corrao Wealth Management, helping families with their financial goals by developing financial, educational, and retirement planning strategies. He can be found at www.corra
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