Most everyone dreams of the day they can finally retire and live the life of leisure. Yet recent evidence suggests that most near-retirees and retirees need to do a better job of timing and long-term planning.
One study, conducted by the Society of Actuaries, looked at retirement risk factors and concluded that while decisions around the timing of retirement are among the most critical, for most individuals, those decisions are not carefully planned out.1
The study found that while a high percentage of retirees/preretirees have considered delaying retirement, when asked how a three-year delay in retirement would or could have affected them financially, almost half of current retirees said a delay would have made them no more financially secure. Among current workers, nearly 40% felt a delay would have no impact on their future finances.
Another trouble spot is time horizons. According to the study, the typical retiree has a planning horizon of just 5 years; preretirees plan just 10 years out. A shockingly low number — 7% of retirees and 13% of preretirees — look 20 years or more into the future when making important financial decisions. Even fewer respondents have plans to account for their life expectancies.
Clearly these gaps in planning can have major implications for your financial security and standard of living in retirement. Consider the following points when planning for your own retirement.
Should You Delay?
For many, Social Security is a major component of their retirement income. Social Security benefits increase substantially with retirement age. For instance, for those with full Social Security benefits the monthly payout is substantially higher at age 70 than it would be if you opted for early retirement at age 62. Visit the Social Security Administration‘s for more on benefits and retirement age.
Consider a Long Horizon
Regardless of income level, maintaining lifestyle expectations through a retirement that may last 30 years or more requires careful planning. Researchers refer to this planning challenge as “longevity risk,” or the risk that an individual could outlive their retirement income. To plan for such a contingency, many financial experts suggest the following game plan:
- Withdraw very conservatively (just 4% or 5% annually) from your retirement accounts.
- Consider purchasing a long-term care insurance policy, which covers nursing home and other long-term care expenses.
- Maintain an allocation to stock investments, for their long-term growth potential.2
Consult with a financial professional.
Next Step: Request a free consultation with Erick
1Withdrawals from annuities before age 59½ are taxed as ordinary income and may be subject to a 10% federal penalty tax. In addition, the issuing insurance company may also have its own set of surrender charges for withdrawals taken during the initial years of the contract.
Asset allocation does not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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