What many
retirement-focused investors want to know
There has always been a degree of uncertainty when
it comes to planning for retirement, but recent market
volatility seems to have heightened the sense of
insecurity. Following is a look at five questions that
are top of mind for many people today as they think
about their retirement plans:
1. How much money will I need to retire?
This is the proverbial $64,000 question. But it's not
as hard to answer as people often think it is, says
Rick Rodgers, CFP®, CRPC, president of
Rodgers & Associates in Lancaster, Pa. "Begin
by looking at your current paycheck stub," he
suggests. "What's your after-tax pay and are you
living comfortably on that?" From here, you can
start to gauge your retirement income needs. Many
financial advisors recommend having about 70 percent
of your pre-retirement income during retirement, but
depending on your desired lifestyle, this may not be
enough. In fact, Rodgers notes that most people don't
reduce spending during their first 10 years of
retirement. Instead, they spend money on different
things, like travel, remodeling projects or a boat.
2. Can I count on Social Security to
provide some retirement income? The future of
Social Security is a wild card. Most experts agree
that some changes must be made to keep the system
solvent in the future, but what those changes will be
remains unclear. More importantly, if you're nearing
retirement, now is the time to think about when you'll
want to begin receiving distributions--at age 62, when
eligibility to receive a minimum distribution begins,
or later? According to Rodgers, the
"break-even" age for taking funds at 62
versus waiting until 66 (the current full retirement
age) is 82. In other words, if you wait until you're
66, when you reach age 82 you'll make up the four
years that you didn't take distributions.
3. How should I invest my portfolio after I
retire? Longer life expectancies and the
ever-present threat of inflation are changing the
equation when it comes to investing during retirement,
says Dan Danford, MBA, CRSP®, president of
Family Investment Center in St. Joseph, Mo., and
author of Million Dollar Management.
"There are three crucial things that can't be
known in advance: exact lifespan, the rate of
inflation and the future performance of savings and
investments," he says. "There's an element
of guesswork to every situation, but individuals need
to see the big picture. I believe that most people,
especially couples, should invest for 20 to 30 years
of potential retirement." Many experts today
recommend that those who are in retirement keep at
least some of their portfolio invested in common
stocks as a hedge against inflation, which could
double the living expenses of someone who retires at
age 65 by the time he or she reaches average life
expectancy.
4. How will I pay for healthcare during
retirement? Since eligibility for Medicare
doesn't begin until age 65, this is one of the biggest
concerns for people who want to retire early. Even if
you have retiree health benefits from a previous
employer, these can always be reduced or even taken
away, so it may be wise to budget for the possibility
of having to purchase a health insurance policy prior
to age 65. Medicare premiums vary based on income.
Also, many individuals need to purchase supplemental
policies to Medicare, so this possibility should also
be factored into the retirement budget.
5. I was planning to retire in five years
but my portfolio has taken a big hit. Now what?
There are three relatively simple, although not
painless, answers to this question: Delay your
retirement, save more money in the remaining years
before you retire and/or retire with less money.
"If you're near retirement and experienced
large losses during the market downturn, you might not
be able to retire when you were originally planning
to," says Rodgers. "While the market could
rebound nicely and enable you to recover your losses
over time, this isn't something you should plan on in
the short term."
