Retire Without Worry: Plan to Have Enough Money to Last
Will you have enough money to last throughout your retirement? For some people, this question provokes anxiety. Their reaction is not to think about it all—to save some money and hope for the best. This isn’t an ideal solution. Even if they are saving enough money, they aren’t sure, and the lack of certainty can create anxiety.
There is another solution—and that’s an assessment of your retirement progress. Whether you’re a year from retirement or a decade away, we encourage you to assess if you’re on track for enough retirement money. Make this an annual checkup so that you can implement timely corrections that keep you on course for sustainable retirement savings.
Here are some questions to ask yourself each year:
1. Do you have a savings target? Determining how much to save is highly personalized and depends on your financial needs, pre-retirement income amounts, lifestyle goals, longevity expectations, inflation rate, and more. Our firm helps clients select and meet their savings targets as part of their financial planning. If you create your financial plan yourself, you can rely on a common rule of thumb like the 4% rule to determine how much to save. Better yet, this Forbes article can help you select a more specific target.
2. Does your savings target need adjusting? Personal or economic changes can mean your savings target needs to change too. Assess your target annually, and adjust your retirement savings goal and investment contributions accordingly.
3. Do you have an emergency fund? How about a fund for big-ticket purchases? We’d argue that these funds are essential both now and in retirement. They can help you avoid dipping into your retirement savings, whether that’s because your house flooded (emergency fund) or you need a new car (big-ticket purchases). You’ll likely need to adjust both fund amounts as you approach retirement and gain a detailed understanding of your retirement income and expenses.
4. Can you contribute more to your retirement accounts? As financial advisors, our goal is to create retirements our clients feel confident about while making sure they still can enjoy life today. That balance is important, but the fact remains that your nest egg depends, in large part, on your savings and investments. So, consider contributing as much as possible, whether you have a 401(k), traditional IRA, Roth IRA, brokerage account, or (ideally) a combination of all the above. If you can meet the annual contribution limits, even better. And once you reach age 50, try to up your limits via catch-up contributions so that you feel confident you will have enough retirement money.
5. Do you know when to start taking Social Security benefits? When you apply for Social Security depends on your other income sources, your plans to continue working or not, health situation, and longevity expectations. The key point is to understand your needs and plan accordingly.
6. Do you have a plan for health care and long-term care? We’ve already written about the rising cost of health care. Long-term care, too, will be expensive if you need it. And chances are you or your spouse will need it. Make sure your retirement plan includes how you will pay for these costs if and when they arise.
7. Do you know how you will withdraw your money? Answering this question will become crucial as you enter retirement. You’ll need an understanding of your cash flow so that you can plan your retirement account distributions. Ideally, you will choose the order of your withdrawals from your tax-deferred, tax-free, or taxable accounts so that you minimize your tax burden.
8. Are you working with a financial advisor? The right financial advisor will work through questions like these with the goal of making your money last your entire retirement. We suggest a fiduciary financial advisor who puts your interests first. An advisor with a CERTIFIED FINANCIAL PLANNER™ (CFP®) designation is a fiduciary and is trained to design comprehensive financial strategies to attain clients’ goals.
Don’t Leave Your Retirement to Chance
The reality is that you will need to have the income or savings (or both) to sustain you for 20, 30, or more years post-career. To meet this need, review the numbers regularly to ensure you are on track. And if you are unsure if you’re meeting the numbers or even what the numbers should be, consider working with a financial advisor.
Our Greenwood Village fiduciary financial advisory firm offers a complimentary 15-minute call. We can briefly discuss your financial situation and concerns and share how we may be able to help.
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