Have you and your spouse discussed your goals and expectations for retirement so that you can be fully prepared? Not that much? You’re not alone. According to research from Hearts and Wallets, more than half of Americans (58%) are struggling with retirement planning, estate planning, and making investment decisions.
An article on NextAvenue.org talks about why this might be case. Part of the trouble is baby boomers have a lot of emotional hopes and dreams tied up in their retirement. They also have goals they want to accomplish before they retire, which may lead to delays in retirement decisions. As for estate planning, many older Americans simply don’t feel a strong urge to deal with estate matters yet.
As you approach retirement, it’s time for discussions. You should have frank conversations with your partner about retirement, what you want it to be, and how you will pay for it. This is a crucial step in being able to enjoy a secure and comfortable future. Let’s go over some important steps to take.
What Do We Want Our Lifestyle to be Like?
First, you and your spouse need to talk about your retirement vision. Do you want to maintain your family home? Do you want to move to be closer to family or somewhere with more appealing weather? Do you want to travel extensively? Do you want to work at all? How will you spend your days?
These are important things to talk about. For one, they help create a more complete framework around which to have discussions of retirement money matters. Some couples struggle at retirement with so much time together, because they don’t have a clear plan for how they’ll spend their time and, subsequently, their money.
How Much Money Will We Need?
This is a very important question to answer. The answer is it depends. Up until this point, you and your partner have had a certain lifestyle and used a certain amount of income per year to maintain it. Will your lifestyle continue as it is in retirement, with just some changes? Or like some people, have you made sacrifices during the working years and look forward to higher-end living in your post-work years? This is just one reason why discussion of lifestyle expectations is critical.
Now, let’s cover some baseline information on this question. Say you wanted an income of $40,000 per year in retirement. With systematic, basic withdrawal rates, and assuming a 25-year period, basic math says to have $1 million saved for retirement.
Of course, this is without discussion of the sources from which the money would come, their tax implications, and Social Security income. It also doesn’t account for whether the income sources may be “permanent” sources (sources providing assured income streams like those from pensions or annuities) or “maybe” sources (sources of money that can fluctuate in value with market activity). So $1 million in retirement savings definitely doesn’t apply as an answer for everyone — it really depends on your spending expectations, expected costs of living, and other monthly income benchmarks.
If you want more income during retirement than you have now, you will want to consider the sources of income you will be pulling money from. This may include having more income streams than you have at present, as many Americans rely upon salaried employment for household income. Alternatively, to meet certain future spending goals you could pare down your retirement expectations or living costs.
How Much Money Have You Already Saved?
Once you and your spouse determine what you want during retirement and how much income you will need to fund your lifestyle, the next step is to determine how much money you actually have saved. You may have 401(k)s, IRAs, investment portfolios, and other personal savings. You may also want to determine your expected Social Security income.
According to a recent article in Forbes magazine, over 50% of American households with people aged 55+ have nothing saved for retirement. If you’re reading this article, you are probably saving already. But don’t be surprised if the balance of your savings isn’t quite what you need it to be. With that said, as we said earlier, be sure to include monthly Social Security income along with retirement money you’ve saved up in your annual income estimates.
First, don’t panic, you can take steps now to increase your retirement savings. Second, let’s talk about what you can do today to make sure that you have the money you need for the retirement you want.
As you look over your nest egg, remember, it’s important to conceive of your retirement needs in terms of monthly income needs, not the value of your retirement accounts. Remember, retirement is a period of decumulation, not accumulation.
How can We Increase Our Retirement Savings?
Of course, saving more and earlier is the best strategy for ensuring a well-financed retirement.
However, if that ship has sailed, you can take action now to build your “money stockpile.” If you are approaching retirement, you may be in an even better place to save more than you were even five years ago. So, what can you do?
Ramp up Your Savings Rate.
This sounds like common sense, but it’s more practically applicable that you might have thought.
First, you may be in a better financial place than ever before. Your children may have grown and set up their own households. You may have paid off your mortgage. You may be thinking about downsizing your living arrangement. If you had any student loans, either for yourself or for your children, they were hopefully paid off some time ago. You may have become accustomed to having the extra money. But if you can muster up the willpower to save an additional 15-20% during your last 10-15 years before retirement, you can make significant increases to your nest egg.
You can also take advantage of opportunities to boost your contributions to savings plans, like 401(k)s and IRAs. That way make up for previous years when you may not have been able to contribute as much. People over the age of 50 can make an additional $6,000 in contributions to 401(k) programs. Investors aged 50+ can also add an extra $1,000 to the maximum contributions for IRAs, increasing that annual total to $6,500.
If you’re in your fifties, start looking for ways to preserve the wealth you have worked hard to attain. Wealth protection strategies are good to start looking into. If they make sense for your retirement future, annuities and life insurance, with their contractual guarantees, offer a strong financial safety net for preserving wealth.
Delay Retiring by a Couple Years, Or Work Part-Time.
Americans are living longer lives than before. If you choose to work for a few extra years, you will not only delay any draws on your retirement savings, which increases their value over time. You will also have a few more years to save and increase your retirement pot.
Alternatively, if you ease out of work by transitioning to part-time work before you completely retire, you can limit your draw on your retirement savings by maintaining some employment income. For example, if you can reduce your retirement draws by the same amount you earn from part-time work, even if that income is only $20,000 annually, you’ll increase the overall value of your retirement fund by $116,000.
Another benefit of delaying retirement is that you will also be able to delay drawing on Social Security. For every year you wait to draw on SSI – past full retirement age – your benefits go up by 8%.
Whatever your retirement plans are, you will need to discuss the details with your spouse. Identifying shared goals and expectations as well as sharing the financial responsibilities that will enable you to live the life you want are essential. Start today, and you’ll be well on your way to preparing for a fulfilling retirement.
Ready for Personal Guidance?
Ready to start preparing for your financial future? You may want to begin evaluating strategies to preserve your wealth and turn it into reliable, lifelong income streams in the future. If you and your partner are ready for personal guidance with preparing an income strategy you can count on, financial professionals at SafeMoney.com can help you.
Connect with a financial professional in our “Find a Licensed Advisor” section, or call us at 877.476.9723 for a personal referral.