Every year, tens of thousands of people retire. Many are under-prepared while few are over-prepared. It’s a big decision that requires a great deal of planning and preparation.
Have you thought about how you are going to retire? What are the people around you doing to prepare?
Today, we are going over what the current statistics say about retirement and ways to help you prepare.
According to a survey performed by the Planning and Progress Study in 2018, the majority of Americans feel financially unprepared for retirement. Many people have very little saved for retirement.
The 2018 Planning & Progress Study surveyed over 2,000 Americans over the age of 18. Of those in the survey, 78% said they were extremely or somewhat concerned about being able to comfortably retire. Nearly 66% said there was a good chance that they would outlive their money.
Revealed in another study, a large percentage of soon to be retirees are more concerned about running out of money than they are of actually dying.
The top four responses when asked what your greatest fear about your personal finances is:
It’s safe to say that as a country we are not prepared to live comfortably in retirement. Social Security only replaces about 40% of someone’s income, sometimes less. Many retirees are having to rely on family members and outside help to “get by” in retirement.
That doesn’t mean there isn’t a good number of people who are doing things right. They have the confidence they will have a comfortable retirement without having to worry about outliving their money. They have the peace of mind of knowing they can leave money to their heirs along with memories of social impact.
What are these people doing to prepare for retirement and how can you get there?
Ways to prepare for retirement
1. What is your retirement goal?
Have you sat down and set your retirement goals? For many, the goal of saving for retirement is building a nest egg that can generate a steady stream of income throughout retirement.
As you age, the focus of your investment portfolio should shift from income growth to income risk management.
Building up a nest egg that will provide for your future expenses takes years of planning and goal setting. It doesn’t happen overnight.
2. How much income do you need in retirement?
Expenses generally decrease in retirement. When shifting from your working years to your retirement years, some monthly expenses may decrease while others could increase.
Some expenses that may decrease in retirement are retirement plan contributions, income taxes, transportation costs from working, work clothing, eating out and mortgage-related expenses.
A few examples of expenses that could increase in retirement are healthcare costs, prescription drugs, property taxes, and travel.
This means the monthly amount you need to withdraw from your retirement savings may be less than the paycheck you received during your working years.
In your working years, most of your income comes from your paycheck. Once you stop working full time, your retirement plan and Social Security most likely will provide the bulk of your income. You may have secondary options for income such as personal savings, pensions, and a part-time job.
It’s good to start looking at what options are available because Social Security won’t meet all of your income needs. In general, Social Security will only replace a portion of what you earn working. The more you make during your working years, the less you can count on Social Security as a replacement for your pre-retirement paycheck.
So how much income do you need in retirement?
How much you should save today depends on how much you will spend tomorrow. A simple calculation can help you determine how much retirement income is enough for your individual situation.
3. How much do you need to save?
Save more as your income grows. Most people who are just starting out can’t afford to save a high percentage of their income.
Instead, consider starting out at a lower, more affordable rate early on and increasing your savings rate as your income grows.
This approach may boost your chances of achieving your retirement income goals.
The My Retirement Income Calculator can help you determine how much potential income your savings may provide in retirement.
4. How should you invest?
Are you comfortable selecting and monitoring your investments? Do you have the time and expertise to manage your retirement portfolio throughout your lifetime?
If you’re not interested or comfortable with this level of commitment, relying on professionals may be the right direction for you.
When investing for retirement, it makes sense to be diversified across a mix of asset classes that include stocks and bonds.
Your plan contains a broad range of investment choices to help you pursue your retirement goals.
5. Should you work with a financial advisor?
A good financial advisor can give you another perspective. Many soon to be retirees feel comfortable managing their own retirement portfolios, but those feeling prepared to retire have almost always worked with a good financial advisor.
You may feel underprepared to retire but a financial advisor could help you see that you’re better off than you expected. Or, if you are underprepared, an advisor could help give you clear action steps that you can take to meet your retirement goals.
Retirement is not a quick decision. It’s really never too early to start thinking about retirement and it is safe to assume that most people are going to live over the age of 90.
About Amicus Financial Advisors, LLC:
Amicus Financial Advisors, LLC was started in 2003 with the vision of helping people prepare for retirement. The company is based out of Lubbock, Texas with offices in Dallas, El Paso, and Utah. We have a team of experts specializing in comprehensive financial planning, estate planning, tax planning, and settlement planning. If you’d like help in any of those areas, feel free to schedule a free consultation to go over your situation. No commitment. No obligation.