New Year’s Resolution 2022: Building And Implementing A Post-Retirement Strategy
Never run out of money. That's the golden rule of retirement planning.
Nevertheless, only 28% of Americans say they're on track for retirement, and 25% say they've saved nothing for their post-retirement years.
How can you get on track — and stay on track — for a successful retirement in these uncertain times?
Start Early
Planning for retirement income takes time.
That's why financial advisors often tell clients to start saving and investing early in their careers. Let's look at the math:
If you invest $1 at age 20, then at age 62, you would have $5.38 assuming a 4% return above inflation. Invest that same dollar at age 55, however, and you'll only have $1.48 at retirement.
On a larger scale, the math looks more like this:
If you invested $10,000 a year from age 25 to age 40, you would have $1,058,912 at retirement.
Invest that same $10,000 from age 35 to age 65 — twice as long — and you'll only have $838,019.
Time is the magic component in compounded interest.
Time can work to your advantage or disadvantage. Americans are living longer than ever. Today, a 55-year-old man can easily expect to see age 80, and a 55-year-old woman will get closer to 85. If you plan to live on your retirement savings for 20 years or more, it’s probably a good idea to start as early as possible.
But what if you're already late to the game?
Start planning your retirement now. Some retirement savings is better than none.
Know what you have.
Retirement income usually includes some mix of social security, 401(k) accounts, employer deferred comp plans, IRAs, Roth IRAs, brokerage accounts, real estate, annuities, and/or pensions.
Beginning right now, you can determine what your social security benefit will be. Sign up for a "my Social Security" account, which lets you track your social security benefits.
Then, get statements from every one of your retirement investment accounts — 401(k)s, IRAs, Roth IRAs, and any other investment accounts you hold. Contact your employer, former employers, and insurance companies to find out what your pensions or annuities look like now.
An independent financial advisor can review all this documentation and help you see a realistic picture of your current retirement outlook.
Know What You Need
You cannot make a sensible plan without accurate information. Even so, 44% of Americans are guessing the amount of money they'll need for retirement according to the Transamerica Center for Retirement Studies.
Fortunately, you don't have to guess how much you'll need to live well in retirement. An independent financial advisor can help you line up a budget for your post-retirement life.
Consider how your needs align with your current plan. For example…
The average American receives a check for $1,543 a month from social security. That's about $18,000 a year. If your retirement budget runs, say, $85,000 a year, you'll need to provide another $67,000 a year.
How do you know if you have enough money to draw down $67,000 a year for 20 years?
$67,000 X 20 = $1,340,000
In this scenario, you'll need at least $1,340,000 to cover your post-retirement expenses — assuming zero percent inflation.
You can use the same math to help you discover when your retirement fund will run out of money.
Pay Off All Your Debt, Including Your Mortgage
Transamerica's survey revealed that 82% of all Americans carry debt. Seventy-five percent of Baby Boomers, those born between 1946 and 1964, hold household debt such as mortgages, car loans, or credit cards.
Debt will steal your retirement savings faster than anything else.
Being in debt simply means someone else owns part of your retirement savings. If you are carrying consumer debt, consider paying it off as quickly as you reasonably can.
One of the quickest and surest ways out of debt is the debt snowball method. Using this strategy, you pay off the smallest debts first, gradually working your way up to the biggest debts. You might also consider working a few more years or downsizing your home to help eliminate your debt. We don't generally recommend you pull money from your 401(k) or other retirement assets to pay off debt, however.
Retirement should offer you opportunities to give and serve others the way you've always wanted to. Debt can prevent you from fulfilling your retirement dreams. Pay it off now, and enjoy your post-retirement years.
Consider Consulting or Working Part Time
No one said you must retire when you turn 65, 67, or any other age. Anthony Pomerleau, an entrepreneur in Vermont, read the paper every morning. He claimed if he didn't see his obituary, he went to the office — until just before he died at age 100.
You may not plan to work as long as Pomerleau, but more and more Americans are choosing to work past the traditional retirement age. Going to work, even part time, can improve your health, finances, fitness, and social life. Plus, the longer you delay taking social security benefits, the bigger your check will be.
Consider work as part of your post-retirement financial strategy.
Plan for Unexpected Roadblocks to Retirement
Life events happen. People die, divorce, or become ill. These events can throw a wrench into even the most carefully laid retirement plans.
Caring for ill or disabled relatives is one often-unexpected event that can derail many people in early retirement. Few of us plan to serve as caregivers, but nearly 35% of the American population is caring for an older relative. The emotional and financial costs of caregiving may cut deeply into post-retirement plans.
Besides these concerns, college scholarships can fall through, home values decline, and jobs evaporate. Talk with a financial advisor about how to navigate these and other unexpected roadblocks to financial independence.
Work With an Independent Financial Advisor Who Shares Your Values
Unless you're an electrician, you wouldn't try to repair your home's power lines. And unless you're a plumber, you probably shouldn't mess with the water pipes. Likewise, you could run into challenges forging a successful post-retirement strategy without help. You often need an experienced professional in your corner.
Besides being an experienced wealth manager, your advisor should be committed to your core values so you can live the post-retirement life you dream about.
At Cooke Wealth Management, we are Christian financial advisors who take a Biblical perspective on wealth, life, and stewardship. Contact us today to create a personalized plan that’s designed to help you stay financially independent throughout your post-retirement life.