Maybe you’ve seen the ads. I started noticing them during the Olympics. Ameriprise Financial ran the commercials with Tommy Lee Jones. One of them posed this question, “Will I outlive my money in retirement?” The number one answer to surveys about retirement present the same concern, “Will I have enough to retire on?” or similarly, “I don’t want to be a burden to my children.” And are you prepared to live to your centennial year?Your ResourcesTo answer that question, a good way to get started is by taking inventory of your current resources. You’ll need spendable cash once you retire. Depending upon your situation, these resources may include some or all of the following:
- 401(k) or similar retirement plan such as a 403(b) or other defined contribution plan
- IRA accounts, both traditional and Roth
- A pension from work
- Stock options or restricted stock units
- Social Security
- Taxable investment accounts
- Cash, savings accounts, CDs, etc.
- Cash value life insurance policies
- Interest in a business
- Real Estate
- Any income from working into retirement
The list above is not exhaustive, and you may have other assets or sources of income that you will be able to tap in retirement. Keeping an eye on these can help your current planning. In the past, I have talked about using a budget to help you live resourcefully in the present. It will be imperative in retirement to have and stay on a budget. Start today to begin using that budget-not the one in your head, but on paper-and make the necessary adjustment quarterly.How much have you accumulated?This is an important question at all ages for those saving for retirement. It is critical the closer you are to retirement and especially so if you are within 10 years or less of retirement.
Using the list above, start gathering your statements and information to get a snapshot of where you currently stand. Get on the right track with the help of a planner who can assist in the diversification of assets and crunch the numbers with some financial planning software. A yearly review is necessary in making the right strides to retirement.
How much will you spend in retirement?
While how much you spend might vary over the course of your retirement, you need to take a stab at a spending plan for retirement if you are close to it. Some of the issues to consider:
- Where will you live?
- Will you have a mortgage or other debts as you enter retirement?
- In what types of activities will you engage?
- What are your costs for medical insurance and medical care?
- Will you need to provide support for children? Grandchildren? Aging parents?
- What will your basic living expenses entail?
These questions just scratch the surface, but I think you get the idea. One other point to remember is that you might spend more on travel and activities in the earlier part of your retirement and less as you age. However, these travel savings might be offset by increased costs for medical care.
Another approach is to figure out what level of expenditure your savings and other resources will support and work backwards to a budget within that spending level. Try to ramp up your retirement savings to close the gap, or perhaps plan to work a few years longer before retiring. This can be done using any number of retirement planning calculators available. With any such tool it is important that you pay attention to the assumptions inherent in the calculator’s model and that you think through any assumptions that you are allowed to input. Better yet, let a professional help you with these assumptions. We have the questions to ask and help guide you through this planning.
Whatever route you take, the issue of outliving your money is a vital one for you to address. There are investment vehicles that can pay you an income the rest of your life and that you can never outlive. In my opinion, outliving your savings is the biggest risk retiree’s face and is a bigger risk than losing money in the next market downturn.
Don’t put off planning for your 100th birthday and make sure you have the income to live on well past the golden years.
Think about this article and if you have questions please give us a call.