by Amber Idleman on May 3, 2018
Most of us save money for our retirement days as there are fewer and fewer pension plans in place, particularly in the private sector. Which of course means that we will rely on Social Security and our accumulated savings to provide an income after we are no longer employed. So, I would like to share some thoughts on increasing the chances for a successful retirement. And by that, I mean a retirement where you can maintain your lifestyle without the fear of running out of money.
The best advice I ever heard was from an older advisor who told his clients; “save more money!” Now that sounds a little trite, but it is important that we have a disciplined savings process. That can mean contributing to a retirement plan such as a 401k. And if you have access to a 401k plan and it has an employer match, then you should be saving as much as the match is. That is free money! (Assuming you meet any vesting requirements). And as part of disciplined savings, watch out for the little things. As an example, many years ago I used to pick up coffee to bring home after my workouts. Usually a couple of times a week. (It was so long ago you could get a cappuccino for $2.50). One day when I got home my late wife told me that we were spending $40 - $50 a month on that coffee. And while she enjoyed it and appreciated it she also informed me that we had perfectly good coffee at home for a lot less than $40 - $50 a month.
I am going to repeat something that we all hear but needs reminding; avoid credit card debt. That can be a tough hole to dig out of and can have a negative impact on your savings. And if you do have debt beyond a home mortgage and a car note then pay off the highest interest rate loans first. Getting rid of those interest payments will free up money for savings.
One of the major factors that is making retirement planning more challenging is longevity. People are living a lot longer in retirement. My Mom worked for the Social Security Administration from the mid 1940’s until the early 50’s. She told me that she remembered a number instances where she processed a person’s retirement benefit and a year or so later a family member would come in to claim a death benefit for that person. That is not how it is now.
One way to address this is to work as long as possible. That may not be feasible for a number of people but if it is available it should be considered. That is more time to add to your savings and less time to draw on it. And along those lines think about deferring Social Security until age 70 which is when you reach the maximum benefit. As an example, if you were born between 1943 and 1954 your full retirement age is 66. Every year you defer after that adds 8% per year to your benefit. That can add up. And it is particularly important when addressing survivor’s benefits. When a spouse dies, the survivor has to choose between the deceased’s benefit or the survivors. If the high earner deferred to age 70 then the survivor will get that higher benefit. This can be a significant issue because the loss on one income can have a serious financial impact on the survivor as the household expenses will not go down as much as the loss of the income.
In some cases after retirement you might be able to work part time or take on some contract work. This can certainly help out your financial situation.
And always work with a financial professional. They can help you manage your investment risk and develop a sound plan to distribute your assets so you can maintain that lifestyle and sleep at night without the fear of running out of money.
Retirement should be a period when we can enjoy the freedom of time that we will have. Let’s make sure it is stress free time.