We like to think that, when we retire, we’ll have time to do all those activities that are on our “bucket list.” We’ll travel, spend time with friends and family, explore new opportunities that will enhance our lives and expand our sense of possibilities. But to have the retirement life we desire, we need to start planning now. In his post, Is 10 the Magic Retirement Number?, Marvin H. Feldman, CLU, ChFC, RFC, president and CEO of the LIFE Foundation, highlights findings from a Lincoln Financial Group study that identifies four behaviors contributing to retirement success:
- Getting advice from a financial professional
- Participating in an employer-sponsored retirement plan or IRA
- Saving steadily, and making extra contributions in “power-saving” years
- Having an investment strategy
Unfortunately, the reverse often occurs. There is little or no pre-retirement planning in the form of increased savings or investing, and more focus on what could be termed wishful planning—hoping that additional retirement income can be derived from selling the primary residence (despite the recent uncertainty in the real-estate market) or from a hoped-for inheritance. The result? A retirement in jeopardy, at a stage where earning power can be severely hampered, if not totally impossible.
While there’s no question that a financial planner can provide useful advice regarding what investment vehicles will best provide the “gold” for those “golden years,” you should also engage in some pre-retirement self-education: calculating what you will need post-retirement, investigating income options and initiating a plan that will give you the future you desire.
Calculating retirement expenses
According to Penn Mutual’s Worth for Women website, it takes about 80 percent of a pre-retirement income to maintain a comfortable life, which works out to $60,000 for someone who had been earning a pre-tax salary of $75,000. (You can use the calculators on the site to help you.) While certain work-related expenses may be reduced (business meals, clothing expenses, transportation costs), other budget out-gos may increase. Health care may cost more, while inflation may result in higher costs for everything from food to fuel. By calculating what your post-work living expenses will be and what you should be saving now to supplement your retirement income, you’ll be better prepared for the day you cash your last paycheck.
Investigating retirement funding options
While investments and retirement accounts are two ways to build a nest egg, there are additional options in LIFE’s Pre-Retirees/Retirees section, one of which is a permanent life insurance policy. While the policy’s primary goal is to provide lifelong protection, it also accumulates cash value on a tax-deferred basis, providing a source of funds that can be used for any purpose including as retirement income.
Another strategy is to purchase a lifetime annuity. It’s a DIY pension plan of sort: you provide a specific lump sum to an insurance company and, in return, they provide a guaranteed stream of regular payments for whatever period you have chosen. (The Insurance Information Institute has an informative section on annuities while at Immediate Annuities, you can calculate your annuity payments.)
Finally, disability and long-term care insurance can also help protect your retirement savings. The former provides an income in case you are unable to work due to illness or injury (thereby protecting your current savings for post-retirement use), while the latter covers the cost of a home health care aide, an assisted living facility or a nursing home. LIFE’s Disability Insurance Needs Calculator helps you assess the income you’ll need to sustain your current standard of living should you become disabled, while the long-term care insurance section provides answers to questions about long-term care insurance.
Initiating your retirement lifestyle plan
Start by determining what retirement life stage you are in, based on this breakdown provided by the Boomertirement web site.
- Working Boomer: 10 years and counting until retirement
- Near-Retirement Boomer: Less than 10 years until retirement
- Retired Baby Boomer: No longer working
If you’re in the first category, focus on living within your means and saving for your retirement. The goal is to minimize debt while accumulating financial assets. If you’re a Near-Retirement Boomer, review your lifestyle requirements for post-retirement and analyze the benefits that will be available to you. The key is to ensure that your information is up-to-date and accurate while you make any last-minute changes to your overall strategy.
If you’ve reached the retirement stage, it’s not too late, says Boomertirement. You still need to live within your means, since your retirement could last 20 to 30 years. You should also make plans now regarding distribution of your assets to your heirs, to reduce the tax implications. (More tips are available on Living Well in Retirement section on the Worth for Women website.)
The bottom line is to be proactive, not reactive when it comes to retirement planning. Take steps now to make your post-employment years the best years of your life!