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Cents and Sensibility Guy Steele |
Act now to avoid
running low on
retirement incomeThese days, retirement is not what it used to be. Today's "retirees" are opening their own businesses, consulting, traveling, volunteering, taking classes -- basically doing whatever they want. They're finding that retirement is enjoyable -- and lengthy. In fact, your retirement may last a lot longer than you'd think, so you'd better be prepared financially.
Just how many years can you expect to spend as a retiree? The answer depends on many factors, including the age at which you retire, your health and your family history of longevity. However, if you're interested in averages, consider these figures from the National Center for Health Statistics: At age 65, the typical American woman can expect to live another 19.2 years; for men, the corresponding figure is 16.3 years. And remember, these figures are averages, which means a lot of 65-year-olds are easily spending 20 or more years in retirement.
If you find these figures surprising, you're not alone. According to a recent survey by the American Education Savings Council, only 23 percent of respondents, whose ages ranged from 56 to 65, identified longevity risk -- the danger of outliving financial resources -- as the top financial threat faced by retirees.
How can you try to avoid running low on money during your later retirement years? Here are a few suggestions:
>> Determine how much you'll need.
Clearly, some people plan on more expensive retirement than others. Your neighbors may be thinking of retiring early and traveling extensively, while you'd like to stick close to home, extended your career as long as possible and then do some consulting. But whatever your vision for retirement, you'll need to set a price tag for it. It will be an estimate, and it may well change later on, but it's a starting point on which you can base your savings and investment strategies.
>> Identify your sources of retirement income.
After you know about how much you'll need during retirement, your next step is to determine where the money will come from. Consider your IRA, 401(k), Social Security, savings and investments -- everything. Try to calculate how much you can expect from these sources, given the years you have until retirement, the various rates of return you might receive, possible earned income, etc.
>> Address potential gaps.
After reviewing your resources for retirement, you may identify gaps -- areas in which you could be doing more. For example, are you contributing the maximum amount to your IRA? Are you increasing your 401(k) contributions as your salary goes up? Do you have a sufficient percentage of growth-oriented investments in your portfolio? By looking at these types of questions, you can address the shortcomings in your investment strategies.
>> Seek help from a pro.
If you're going to take all the steps described above, you may well need the help of an investment professional -- someone with the tools and training necessary to help you achieve your retirement goals. Make sure you work with someone who takes the time to understand your risk tolerance, your work and family situations and your investment preferences.
As you can see, there's a lot you can do to prepare yourself financially for retirement. And if that retirement turns out to a long one, you'll be especially glad you made the extra effort.
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Guy Steele is a financial planner and head of the Pali Palms office of Edward Jones. Send planning and investing questions to him at 970 N. Kalaheo Ave., Suite C-210, Kailua, Hawaii, 96734, or call 254-0688
