Gene Perret, the comedy writer for such popular television shows as “All in the Family,” “Three’s Company,” and “The Carol Burnett Show,” once said of retirement, “It’s nice to get out of the rat race, but you have to get along with less cheese.” Almost everyone looks forward to that time when they can sleep as late as they want, spend their days traveling or playing golf, and opining about the state of the civilization.
But the responsibility for a comfortable retirement rests almost completely on the shoulders of the individual worker. Government programs like Social Security and Medicare provide a minimum level of income and healthcare costs to recipients – but those benefits are intended to be supplemented with employer benefits and private savings.
Having failed to save enough during their earning years or being victims of poor investment decisions, many seniors are discovering that the retirement they expected is beyond their reach. As a consequence, they are working longer, scaling back expenses, and forgoing some of their dreams. But fortunately, all is not lost, even for those whose retirement dreams may seem dashed.
The Keys to the Retirement You’ve Always Wanted
Despite the travel industry’s advertisements showing seniors walking through the sand on exotic, foreign beaches or dancing the night away on a Caribbean cruise, fewer than one in five workers are “very” confident that they can retire comfortably, according to the 2014 Retirement Confidence Survey. Only one in four current retirees are “very” confident that they will have enough money to live comfortably throughout their retirement years.
While the outlook for your retirement may be cloudy, there are steps you can take to improve your financial situation and the happiness of your retirement years.
1. Maximize Income Flow
Few people who retire continue to have the same level of income as when working. Nevertheless, there are options available to increase your income:
If you just retired, congratulations. You’ve received the gold watch, relished the looks of co-workers who envy your new freedom, and begun to plan that long-awaited European tour you had always hoped to take. Life is good, but you do have concerns – mainly, whether your future income can sufficiently cover your basic living expenses, plus those little extras that make retirement special.
Financial experts generally calculate that you need between 70% and 85% of your pre-retirement income to maintain your lifestyle. Even if you were diligent about saving during your working years, it’s likely that your investment portfolio has not yet fully recovered from the recession, and returns are still lower than you expected them to be. How do you ensure that your nest egg is big enough to meet ongoing expenses?
Significant Future Income Increases Are Unlikely
Your future income will be a combination of Social Security benefits and the systematic liquidation and withdrawal of your retirement assets over the remaining years of your life. At age 65, you can expect to live, on average, another 19.1 years, according to the Centers for Disease Control and Prevention (CDC). If you are genetically gifted, however, you may live to 100 or longer – the number of centenarians in the U.S. rose to 53,345 in 2010, a 65.8% increase from 1980.
Your initial retirement calculations were probably based upon an annual withdrawal rate of 4% of asset value, a figure most financial planners had generally agreed would provide a stable income for 30 years. Nowadays, however, that percentage is considered by some to be too liberal. Recent studies have suggested that in the current economic environment, withdrawing income at a 4% rate could increase the risk of depleting your assets during your lifetime. Since the level of your future income is uncertain and may be lower than originally anticipated, it would be prudent to reduce your living expenses where possible so that less income is needed to provide the same quality retirement for your remaining years, however long that may be.
This article first appeared on Forbes.com on February 19, 2014.
If a person’s lifetime was equated to the four seasons of a year, the time following retirement would be the equivalent of autumn. It’s when nature slows down, takes a breath, and appreciates the accomplishments of spring and summer. People generally reach this season in their 60s and 70s, some with trepidation preparing for their remaining years. Many mourn the passage of youth and resent the next generation taking their place in the sun while others, like the poet W.B. Yeats did, choose to “take up life in both hands and care more for the fruit than the flower” in the years following retirement.
Retirement means, for the first time in decades, you have the luxury of worrying only about yourself and possibly your spouse. A new life beckons, pregnant with opportunities and challenges. Unlike your youth, you’ve gained experience and wisdom as well as the confidence that comes from having survived the obstacles and setbacks of starting a family, raising children, and building and maintaining a career. You are free and now face a whole new life full of adventures just waiting to happen.
The End of Accumulation
Youth and middle age are spent chasing dreams, accepting responsibilities, and amassing assets – psychological and physical. If you’ve been diligent and lucky, you’ve accumulated financial wealth in the form of an IRA, 401k, stocks, bonds, and savings. Your employer might have provided additional assets in the form of company stock, a pension, or a profit-sharing account. You may own tangible assets like real estate, art, and collectibles and you’ve also acquired automobiles, furniture, tools, gadgets, heirlooms, and knick-knacks over your lifetime – most of which are rarely used or even remembered.
According to a 2013 Gallup Poll, more than half of working Americans expect to retire by age 65 or earlier. However, this expectation stands in stark contrast to their practical readiness for retirement.
The 2013 Retirement Confidence Survey, performed by the Employee Benefit Research Institute and Matthew Greenwald & Associates, delivers the following unsettling statistics:
In 2013, three of four Americans had total savings of less than $25,000, and an astounding 28% had less than $1,000.
Less than half of Americans have any idea how much money they will need during retirement or how much they have to save in order to reach that amount.
Almost two-thirds of all workers feel they need more than $250,000 in savings, 40% estimating they need at least $500,000.
Six of ten workers contribute to a retirement savings plan through work, but the average is skewed heavily in favor of those who earn $75,000 or more annually – 94% of those who earn $75,000 or more versus 24% of those with incomes lower than $35,000.
Only one in four of workers feel very confident that they will have enough money to take care of basic expenses, not including healthcare, during retirement – and only 14% think they will have enough money for healthcare.
Despite the probability that many Americans will have to rely on Social Security and Medicare for the bulk of their retirement and healthcare expenses, a FindLaw.com survey reveals that 30% of workers lack faith that these programs will be viable when they retire. Many economists analyzing the existing demographic and savings data project that tomorrow’s retirees need to save more, work longer, and get by with less than today’s retirees do. If that potential fate discourages you, implement the following tips as soon as possible to improve your likelihood of enjoying a comfortable retirement.