Jacqueline Runnberg, CFP®, Vice President/Wealth Advisor
For most, retirement is what you save for. It’s an activity that keeps you focused on accumulating assets and making long-term investment decisions. But, it’s hard to know how much to save and if you’ve saved enough. To do that, you need to know what your retirement will look like and when it will begin—things that are different for everyone.
To help you gain clarity, here are some factors to consider as you think about what you want to happen next, after the saving stops.
➢ Be realistic: Age 62 might be a little premature for retirement.
Although the age of 62 is still associated with retirement, if your birthday is between 1943 and 1954, your full retirement age for Social Security purposes is actually 66. The age increases gradually for those born in subsequent years, until it tops out at 67 for those born in 1960 or later.
While you can still initiate benefits at age 62, they will be seriously discounted (between 25% and 32.5%) from your full retirement age benefit for those born after 1942.1
This is why retiring early may not make financial sense—quite a bit of money could be left on the table, unless you’ve saved enough to cover expenses in the early years of your retirement without Social Security benefits.
➢ Think long term: Savings (and benefits) need to last longer than ever before.
According to the Social Security Administration, a man who reaches age 65 can expect to live, on average, until age 84.3. A woman can expect to see age 86.6. But, these are just averages. One-fourth of 65-year-olds will live past 90 and one-tenth can expect to live past 95.2 This means you’ll need a strategy for how your savings can be invested (and withdrawn) in a way that lasts your lifetime, a period that could rival the number of years you spent working.
➢ Rethink expenses: Your retirement spending level may not change as much as you think.
It’s entirely possible your expenses in retirement won’t change so much as what you spend your money on. And, that is likely to keep changing. For instance, in early retirement more of your budget will probably be devoted to entertainment and travel than in the past. If your health needs change, entertainment and travel expenses may fall as home care and medical needs rise.
➢ Sweat the details: It’s what you can’t control that you most need to plan for.
Both inflation and health care costs can seriously impact your financial footing in retirement. Any financial strategies you develop will need to be flexible enough to accommodate these factors. They are also the reason you can’t afford to be a conservative investor—you will need to keep a portion of your assets growing if these factors are to be addressed. You’ll also need a withdrawal strategy that can tolerate the unknowns as well as the knowns.
Retirement Is Another Beginning
Retirement is really more like the last quarter of a game that is likely to see multiple overtimes. That’s why envisioning what your retirement will look like and how you will sustain it over three to four decades is so critical while it’s still early in the game.
This is something our wealth management professionals can assist you with. Working together, we can create a plan that helps ensure what you save over your working life will support the retirement you envision and deserve.
1 Social Security Administration website, retrieved November 3, 2015.
2 Social Security Administration website, retrieved November 3, 2015.
Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.