Financial Late Bloomer?
There’s Always Time to Cultivate a Retirement Plan
By Pamela Monetti
Will I have enough money to retire? If you are 50 or over and have asked that question, you are not alone. Many people invest for retirement by determining how much they are willing to save, rather than how much money they will need when they reach financial independence.
A recent article in USA Today entitled “Boomers: Don’t Give up Your Day Jobs,” noted that 74 percent of boomers say they will rely heavily on Social Security in retirement. (The average Social Security check is $1,230 per month.) It’s no wonder baby boomers are worried.
To help address such worries, here’s an idea from Dr. Stephen R. Covey, who in his book, The Seven Habits of Highly Effective People, suggests that when setting goals we “begin with the end in mind.” So, start by picturing what retirement will look like for you. Where do you want to live? Where would you like to visit? What hobbies would you like to enjoy, etc.? Once you have that vision clear, you need to determine what it will take to achieve it. Your financial planner can help you work through the math, but you will need to have a clear opinion on the following items.
If you don’t have a financial planner, there are some good financial calculators on the Internet. Two to consider are:
- Fidelity –http://personal.fidelity.com/planning/retirement/income_planner.shtml
- AARP- http://www.aarp.org/work/retirement-planning/retirement_calculator
Just remember, you will still need to be ready to address these issues:
1. Determine your monthly need in retirement. Most people need about the same in retirement as they bring home now. They want to remain active in retirement, enjoying life, spending money on exercise classes, new interests, vacations, you name it! Be sure to also consider any potential health care costs, so you can address these needs and maintain good health.
2. Factor in all of your guaranteed income sources like Social Security and any pension; then subtract these from your current income.
3. Calculate the difference between 1 and 2 above and that is the amount you will need to fund from your own financial resources.
4. Consider how long you might live. Look around you. People are living longer and you want to make sure you provide enough money to last your entire life.
5. What rate of return do you expect to achieve during your retirement? Depending on how your portfolio is invested, you can likely expect a 3 to 7 percent rate of return. I suggest calculating the amount it would take to provide a fairly conservative rate of return of 6 percent in a well-balanced, investment portfolio.
6. What do you think inflation will be? This is a very important part of the calculation. If you live 25 to 30 years in retirement the cost of goods and services will increase dramatically over that time. You need to prepare for that.
7. If you are still in the accumulation stage of your life, you will need to decide what rate of return you can expect while you are still saving.
8. What amount of money have you saved to date?
These factors will give you the amount of money you still need to fund your goals. Hopefully, your numbers will reveal you are on your way to financial freedom, but what if you fall short? There are a number of things you can do:
- Save more now. You may have to give up a few things in the short term to enjoy life later.
- Reduce the amount needed in retirement.
- Work a few more years and continue to save.
- Consider part-time work in retirement; many retirees have found fulfilling and fun jobs after retiring. For example, if you enjoy golf, maybe you can find a job at a country club. Love to paint? Perhaps you can teach a class.
No matter where you are on the financial planning path, it’s a good idea to meet with your financial planner for help and guidance. Chances are you have touched on these subjects, but perhaps haven’t had the opportunity to “begin at the end” and set that important goal of exactly how much you will need in retirement. This would be a great topic to frame for your next conversation with your planner.
It’s great time to be a “Boomer and Beyond,” and even those cultivating a financial management plan later in life can get excited about retirement. It’s worth planning for and making sacrifices today to reach your goals so you will have choices down the road.
Written by Pamela Monetti, CLU, ChFC, of Life Plan Financial Services, located at 436 University Drive, Severn, MD 21144. She can be reached at 410.969.9500. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser.