By Eric Estelle, Manager, Financial Planning & MarketingPrint This Post
Retirement can be both a joyous occasion and a scary proposition. For many, the thought of no longer having a steady paycheck causes enough anxiety to overshadow the accomplishment of reaching retirement. There are several common questions that come with the prospect of retirement. When can I afford to retire? Will I be able to fund my living needs? Can I afford to travel, or gift to family members? What if I pass away early, or live beyond my life expectancy?
The answers to these questions will all be driven by your required – and desired – retirement income. In other words, how much you plan to spend each year during retirement. Simply knowing how much you will spend each year can be a daunting question all by itself. Basic living needs, health care, travel, family or charitable gifting, and home maintenance are just a few things to consider when thinking about your retirement spending. Add to the question of desired spending things like annual inflation, portfolio performance, Social Security claiming strategies, and potential long-term care costs and you will start to see how complicated planning for retirement can be.
Engaging your financial advisor in the planning process is perhaps the best way to help ease fears and answer your most important retirement questions. This process will assess your unique situation and spending plan to calculate the likelihood of a successful retirement. If the initial results show a high probability of success, great! You are on the right path. But you should revisit this financial plan with your advisor periodically to evaluate any necessary adjustments as life and the economy change. On the other hand, the results might show a funding shortfall. This can be hard to hear, but the good news is your questions are being answered and you will know what changes are required to have a successful retirement.
Generally, these changes are focused on things within your control. For example, delaying retirement can have a substantial impact. Retiring one year later gives you an extra year to save for retirement, allows your portfolio to grow for another year, and reduces the length of retirement by one year. Other potential adjustments might include an increase to the amount you’re saving each year, decreasing certain retirement spending goals, or adjusting your investment allocation.
The earlier you start planning for retirement, the better. The more time you have to make adjustments, the more incremental these changes can be, making them easier to implement. However, it’s never too late to plan for retirement. For those who have recently entered retirement, a financial plan can determine if your current spending rates are sustainable, identify the optimal Social Security claiming strategy, and illustrate the ideal investment allocation to help you achieve your goals. Planning for increased health care costs and potentially a long-term care stay can help ensure those in the latter part of retirement won’t outlive their assets.