Envisioning a retirement by the beach, or with a relocation? It all takes planning, and there are plenty of tools to help with that.
Retirement Tip of the Week: If you’ve decided to get serious about planning for retirement, no matter your age, think through what you will need then and how to get there.
The pandemic has made it all the more clear why planning for retirement is crucial – not only to live a secure lifestyle in old age, but in case an emergency pops up that takes you out of the workforce.
If 2022 is the year you start taking retirement planning seriously, here are a few tips and tools to get you started:
Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey
See: 20 New Year’s resolutions make your retirement dreams come true
Start with the questions
It’s hard to plan something with no end goal in mind. Before you can figure out the numbers (even loosely), understand what it is you intend to do in retirement. If it’s a relocation, how much does it cost to live in this new place, including taxes and local healthcare options?
MarketWatch has a tool that includes numerous variables, such as recreation, climate and budget, for finding the best places to live. MarketWatch also has a column on where to retire, “Where Should I Retire?,” which answers readers’ questions based on their wishes for this new destination.
Also ask yourself what you hope to do in retirement, be it vacationing and dining a lot or volunteering. “Begin thinking about your purpose in retirement,” said Patti Black, a certified financial planner at Bridgeworth Wealth Management. “You need to know what you are retiring to, not just what you are retiring from. Who are you and what are you going to be doing now that you’re not working?”
Contribute, contribute, contribute
Putting money aside is crucial, up until the day it’s time to resign. For people who aren’t close to retirement but starting to think about it, “the most important thing is to take the first step, even if it seems insignificant,” said Ralph Bender, a certified financial planner at Enduring Wealth Advisors. “Regardless of the options available to them, committing to just 1% or 2% from every paycheck gets them started.”
Financial advisers typically suggest saving 10%-15% of one’s salary, but that isn’t always feasible, in which case start with what is. If your employer offers a 401(k) with a match, try to meet it. If there is no 401(k) at work, open an IRA. There may be times when contributing is too difficult, especially when juggling other financial and familial obligations. When that happens, pare back contributions temporarily and promise to increase it when more money comes in, such as after a raise or a job change with a salary increase.
Pay attention to asset allocation as well. Typically, the further away retirement is, the more aggressive a portfolio can be. Being close to retirement doesn’t mean the portfolio should be invested primarily in fixed assets, but it should be more conservative to avoid major losses during a market downturn (someone near or in retirement doesn’t have the years to make up those losses like someone in their 20s retiring in 40 years).
Have a question about your own retirement concerns? Check out MarketWatch’s column “Help Me Retire”
Plan for Social Security
Not everyone believes Social Security will be available to them when they retire, especially millennials. Social Security is currently facing insolvency within the next 15 years, at which point the trust funds that support the program will run out of money. If that were to happen, beneficiaries will see an estimated 20% reduction in their checks. But Congress has never let Social Security fail before, and experts don’t expect that to change.
Many factors go into Social Security claiming strategies, including a person’s work and earnings history, their age, their health and longevity expectations, their spouse’s benefits and if they actually need the money as soon as possible. There are a handful of calculators available specifically for Social Security claiming.
Figure out the numbers – and reach out for help
The further one is from retirement, the harder it is to know how much money will actually be required to sustain a similar, comfortable quality of life in retirement. There are plenty of online calculators to help crunch the numbers. NewRetirement, in partnership with MarketWatch, created a calculator for readers to begin their financial planning for this next chapter. It asks questions such as marital status and age, cash inflows and outflows, the ideal age for retirement and when that person expects to claim Social Security. Readers can then pick a few scenarios, such as reducing expenses by 10% or delaying Social Security, to see how those events would affect their financial needs and means in retirement .
Calculators are helpful, but they don’t always ask all the right questions – and they can’t tell when a user is over- or underestimating their finances. A financial planner can do that. “People should really enlist the assistance of a Certified Financial Planner to understand where they are and work on a plan for their particular needs,” said Nadine Marie Burns, a certified financial planner and chief executive officer of A New Path Financial.
Don’t jump for the first professional, either. Burns suggests interviewing several people to find the best connection. “Retirement can be the most expensive financial period in life, and working with a professional can uncover issues and alternatives you might not have considered.”
Certified Financial Planners are one type of financial professional who can help individuals make sense of their finances – be sure to vet your adviser, and not rely solely on recommendations from family and friends. Here’s how to do that.
