As baby boomers have aged, a significant portion have reached the traditional retirement age. While some choose to retire early, the most common age to retire is still 65. However, due to factors such as longer life expectancy and insufficient retirement savings, many boomers are delaying full retirement or returning to work in some capacity in their later years.
Despite this, Statista reports that 88% of boomers in the U.S. have some type of retirement savings — which means that the vast majority will be able to retire at some point. Jamie Bosse, principal wealth manager at Aspyre Wealth, said, “Someone who has four times their annual income in retirement savings by age 50 is on track financially for retirement.”
Determine Your Retirement Income and Needs
What’s your ideal income to retire? This can be a hard question to answer, but it’s critical to successful retirement planning.
“A common standard for post-retirement income is 70% of the annual salary you made while in the workforce. And the average retirement lasts about 20 years, so you should plan to fund at least two decades of post-work life,” said Ben Skilling, director of financial planning at UMB Bank.
Your lifestyle and goals may call for a different percentage than what Skilling provides, so it’s important to be honest with yourself both about your expectations and what’s within your financial realm of possibility. For example, it might be necessary to consider downsizing or relocation options. By determining your retirement income needs, you establish baseline priorities that you can later reevaluate as circumstances change.
Up The Gains personal finance advisor Sammie Ellard-King recommends using online retirement calculators. These calculators can provide a rough estimate of your retirement income needs based on current savings, investment returns and projected Social Security income. But remember, online tools can only be so accurate — a personalized approach that looks at individual circumstances is always the best course of action.
Build Your Financial Habits
Financial habits such as saving and investing also help keep you on track. There’s usually a general benchmark for the percentage of income you should have saved. However, Tammy Trenta, financial advisor and CEO of Family Financial, said, “You only have to compare your savings against your estimated retirement income needs. Consider the 10 to 12 times your annual income guideline as a starting point, but adjust it based on the cost of living in your city. Determine if your savings are sufficient to support your retirement lifestyle.”
If you feel like you’re falling behind, Sylvia Guinan, financial advisor at Wells Fargo Advisors, says you can implement these actions to catch up:
- Increasing your 401(k) contribution
- Participating in the 401(k) catchup contribution if you’re over 50 years old
- Putting sayings into an HSA account for future medical co-pays/needs
- Working a little longer
- Delaying taking Social Security to allow it to accumulate more
Review Your Investment Portfolio
When it comes to investing, there is no one-size-fits-all. The types of investments you make depend on how long you have left to work and your personal financial situation.
According to Trenta, “Evaluate the diversification and risk profile of your investment portfolio. In a high-cost-of-living city, it’s essential to strike a balance between growth potential and stability. Ensure that your portfolio includes a mix of asset classes suitable for your risk tolerance, long-term retirement goals and the economic conditions of your city.”
If you’re trying to figure out whether you have enough money invested, consider the 4% rule.
“This rule says that you can safely withdraw 4% of your investment portfolio in the first year of retirement and adjust it for inflation in subsequent years without outliving your money,” said Kendall Meade, CFP at SoFi. “It is important to keep in mind that this rule of thumb came from a research study that analyzed rolling 30-year historical periods to understand the maximum sustainable withdrawal rate for someone living for 30 years in retirement. It is also based on a 50/50 portfolio, where half of the retirement assets are invested in equities, while the other half is invested in fixed income.”
Monitor and Manage Debt Levels
Trenta advises keeping a close eye on your debt levels, especially as retirement approaches. High living costs can make it challenging to save adequately if a significant portion of your income goes toward servicing debts. Develop a debt repayment strategy to alleviate this burden and free up funds for retirement savings.
“By retirement, one should aim to be debt-free, or at least have a manageable amount of debt,” added Ellard-King.
Seek Expert Advice
“Before taking the leap of retirement, I recommend that you work with a financial planner to have a comprehensive financial plan done,” said Meade. “This involves looking at your specific financials and goals to determine if you are on track. This will help you to account for other costs that you may not have thought of, including healthcare and long-term care events.”
It may also give you peace of mind to know that a professional has reviewed your retirement plan and signed off on it.
Everyone’s financial situation is unique. While the aforementioned checkpoints provide a foundation for assessing your retirement readiness, the application can vary depending on your circumstances, the cost of living in your area and your lifestyle choices. However, no matter what your situation is or how prepared you feel, you should prioritize retirement planning. This ensures your savings and investments can provide financial security, flexibility and the ability to enjoy your retirement years to the fullest.
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