Tips for a Better Retirement
Too many people are not prepared for retirement. A recent study by the Employee Benefits Research Institute (EBRI) sheds some light on the problem of poor retirement planning.
EBRI's 2011 study shows more pessimism about retirement readiness than any time over the last 20 years.
- In 1991, 11% of workers expected to work past age 65.
- In 2011, 36% expected to work past age 65.
- 27% of workers are not at all confident that they are prepared for retirement.
What is really concerning is that even though more workers are not confident, they have not done anything about it, like saving or planning more.
"27% of workers are not at all confident that they are prepared for retirement." [Tweet This]
Guessing Isn't Planning
Many people simply guess at how much money they will need to be prepared for retirement.
The real way to be prepared for retirement, regardless of your income, is to actually do some planning to understand what you will need.
One point that may be a factor for the low readiness rate is that current workers saw their parents retire without having to really worry about it. Their parents' company provided a defined benefit pension plan that paid a pension close to what they made before they retired. They didn't have to really save.
Today's worker now needs to be aware of the consequences of not planning. They most likely won't have a pension. What they need is a financial scorecard that tells them how they are doing in preparation for retirement.
In planning for retirement, one must consider the risks, which are formidable and include:
- Longevity risk
- Sequence of return risk
- Inflation risk
- Long-term-care risk
- Cost of health care
- The risk of the early death of a spouse
All of these should be considered when planning for retirement. Unfortunately, very few people do this. They will probably be shocked at what retirement will cost and they are likely to be unprepared.
One of the first things to consider is how much retirement will cost you. If you have a good idea of this cost, then you can better evaluate where you are in saving relative to the cost, and start making the needed changes (savings, investments, etc.) to increase your readiness.
Five Retirement Planning Questions
To establish a good understanding of the retirement costs you are likely to incur, we recommend answering the following questions:
- When would you like to retire?
- What is the cost of your current lifestyle?
- Where would you like to live in retirement?
- Do you plan to travel?
- What kind of legacy would you like to leave?
Keep in mind that as your life changes, your planning also needs to change. We find that many people have significant changes to their lifestyle over time. These changes need to be reflected in your plan, and often require adjustments to your anticipated needs and savings amounts.
Retirement planning is different. While you have accumulated all your life, in retirement, the focus changes to de-cumulating. This includes looking at all sources of retirement income, savings and investments.
Your planning should take into consideration contingencies, risk management techniques and taxes.
Retirement planning requires a comprehensive approach, taking into consideration various withdrawal techniques. Your plan needs to be customized to you. Everyone is different. You may want to retire and not work another day, spend more time with your children and grandchildren, or be active in your church and go on mission trips. On the other hand, you may want to start a new business, or continue working in a new career that you have always wanted to pursue.
You Only Have One Chance to Plan for Retirement
Our goal is to help you enjoy this new phase of life. You only have one chance at this. It is hard to recover from mistakes. Work with a planner who has expertise in this area. This takes a lot of time and is not solved in a quick sales presentation. You need a planner who takes a comprehensive approach, is competent and who can offer unbiased advice.