According to Fidelity, 79% of Americans are confident they are in a place to be able to retire how and when they want. But this confidence is sadly beset by reality, where another survey by TIAA found that 55% of Pre-Retirees say they feel prepared to manage their income in retirement, yet in that same survey, only 21% anticipate that their nest egg will last their lifetime!
Since running out of money in retirement is one of the top two concerns of retirees, the other is rising health care costs, which is part of the same concern of running out of money. Statistics like these should give any pre-retiree pause to reflect if they are truly on the right track and if their savings strategy matches their long-term retirement income needs. The truth is that you need to plan your retirement as much as you plan your career and, yes, it’s a difficult job.
A survey from bankrate.com says 48% of Americans say they have lost sleep over their finances starts to make sense when so many Americans say they are confident about their retirement, but in reality, deep down, so many are concerned that their nest egg will not last their lifetime. To compound this, couple’s financial issues are the number two cause of divorce behind infidelity according to TD Ameritrade. So here are the top three things you need to know if you are within ten years of retiring.
Number One: Figure out what success in retirement looks like for you and start planning for it today. The old saying stands, “if you don’t know where you are going, how will you know you have made it when you get there.” In a 2014 study of 1000 retirement savers for Charles Schwab, 39% said they spent more time planning their vacation than their retirement. While this is a small sample, it still gets to the heart of the matter, planning for retirement isn’t fun and most of us put it off.
Furthermore, we tend to focus on how much money we will need in retirement rather than what does a successful retirement look like. I say, think big, be bold, make your retirement the envy of your peers. Make your retirement plans Aspirational and define what success looks like to you in retirement. Retirement is great. Play golf, travel spend time with family is all great but are there other things out there you want to do during this next chapter in your life? What do you want to define your retirement and give it purpose. Again, you need to plan your retirement as much as you plan your career.
Number two: Start saving as soon as possible and save more. We all know this obvious one but not all of us do this. When it comes to saving and investing, the earlier you start the better off you will be. Looking back, the biggest regrets among people nearing retirement are financial, according to the TIAA survey results. The number one thing those nearing retirement wish they had done differently is to have started saving for retirement earlier (55%). Nearly half (46%) wish they had saved more of their salary for retirement, and 36% wish they had invested those savings more aggressively. If you are within ten years of retirement, however, you need to figure out how to maximize your savings, right now. At a minimum, make sure you are taking full advantage of all your catch-up provisions in your 401K plan. If you have a SEP or other retirement plan, make sure you are putting in all you can, many of these SEP plans allow you to put in way more than the $30,000 maximum for people age 50 and older in their 401K(s). If you are a business owner, you may contribute up to $66,000 to your plan which can help speed up the savings process. Also, depending on your 401k plan, some Americans may be able to make after-tax contributions to your 401K over and above your pre-tax contribution limits. This process is called the mega back door Roth. Check with your 401K plan and see if it is available to you, if so, it is another way to accelerate your retirement savings.
According to Vanguard, the average balance of a 401K for an American age 55-64 is only $256,244 with a median of a mere $89,816. Now these numbers do not reflect other IRA balances these Americans may also have which may or may not be larger. But an average 401K balance of ony $256,000 will not get you far in a 30plus year retirement. If you are ten years from retirement, start saving as much as you can and build a cash reserve in very liquid investments to start your first few years of retirement. This plan will allow your tax deferred accounts like IRAs and 401K’s to continue to grow tax-deferred during your early years of retirement.
Number three: Get help from a professional. Work with a financial advisor and retirement coach to build an Aspirational financial plan that helps build a framework for both financial and personal success in retirement. TIAA’s Transition to Retirement Survey says that 54% of those who have met with an adviser feel extremely or very prepared for retirement compared to just one-third (34%) of those who have not. Moreover, in a 2019 Northwestern Mutual Survey said that 92% of people say that nothing makes them happier than having their financial houses in order. Which makes sense when the study further shows that 7 in 10 respondents who have an advisor said that they are happy with their life, compared to 5 in 10 people say they are happy but handle their money on their own. An Independent, fee only fiduciary financial advisor like RHS Financial can give you insight and perspective on everything that we have discussed in this article and can make you more confident that you won’t outlive your nest egg. You can also schedule a free 15 minute consultation with an advisor at our firm by clicking here.
If you are getting close to retirement, you really need to know about and do these three things. Retirement really is a difficult job to do right. Be sure to plan your retirement, like you plan your career, very carefully. Sit down, think, and plan your vision for your retirement. Don’t just retire, retire spectacularly and with a purpose. Make sure that you are doing everything you can to save and be sure to maximize any tax-free or tax deferred options you may have to grow that money for your tomorrow. Finally, seek help from a professional. Find an independent advisor that can help you build a financial roadmap for the golden years of your life.
