I've heard that some people spend more time planning vacations than their retirement. The irony is that retirement could be the longest 'vacation' one will ever take. In fact, data shows that women and men who reach 65 now are likely to live another 19 and 16 years respectively†.
But unlike vacations that usually have specific start and end dates, places to visit, and a general budget, no one really knows how long they'll live in retirement and how much will be needed. Unfortunately, it seems many people fail to plan because they're overwhelmed by the number of unknown factors that go into creating a successful retirement plan.
The good news, though, is that with the support of an advisor, it may take little effort on your part to create a meaningful financial plan. And answering the following basic but important questions could get you one step closer to achieving your retirement goals and dreams:
- What does retirement look like for you?
- When can you retire, how much income will you need, and where will it come from?
- Are you saving enough and is your portfolio invested appropriately based on your desires, concerns, time horizon, and risk tolerance?
With the answers to those questions, an advisor can help assess whether you're on track or if adjustments should be made. The sooner this can be done the better, as changes often require time to be effective.
What does retirement look like to you?
I hear clients say retirement "is all Saturdays and Sundays." I don't know about you, but there are some weekends my family is very active and spends a lot of money, and other weekends where we ask each other "what do we want to do" and end up doing nothing.
A sincere and realistic evaluation of what retirement looks like to you is a good place to begin. Simply jot down a wish list. Get granular and draft a spending plan that starts with what's most important to you. Think about how you'll spend your days. Your advisor will help you get to an acceptable number that works for you and your financial plan. Getting this right and confirming you have the income you need is important.
When can you retire and how much income can you take?
For many, the intent to retire goes beyond simply not working, but having the time to do what they want. The longer the retirement, the more assets you will need to keep up with inflation and support those 15, 20, or maybe even 30 more years of spending.
To estimate what you may reasonably withdraw each year, the general rule of thumb is to use 3% to 4% of your investable assets. Ideally, your accounts are invested and growing at a rate greater than the amount you are taking out. This number is then added to any other guaranteed income sources, like social security and pensions.
Determining how much you need in a portfolio and when and how to draw social security can be modeled through the plan giving you a better understanding of how these decisions impact your cashflow.
Do you have enough and is it invested appropriately?
Once you narrow down when and how you wish to retire, your advisor can analyze your savings and investments to see if you're on track. Are you saving enough money? Are you invested in a way that you're comfortable? Is your portfolio appropriately balanced and likely to grow at the rate needed to achieve your desired outcome? If you aren't where you need to be, you have several choices to get back on track:
- Delay retirement
- Reduce retirement expenses
- Save/invest more
- Change investment allocation
You might be surprised how minor tweaks could impact the outcome of a plan over time. However, because your life, portfolio, and the economy are ever changing, your plan should be reviewed at least annually and more frequently if needed.
Most of us aspire to retire for many years, yet we avoid the process of planning because we think it's a heavy lift. Working with your Huntington Financial Advisor to build a personal financial plan can help make the complex simple and remove the guesswork, getting you that much closer to a secure retirement.
Belinda Sherman, Director of Product Management and Financial Planning, holds a BA from University of Cincinnati's College of Business, CFP® certificate from The College of Financial Planning and holds the FINRA Series 7, 24, 53, 63 and 65 registrations.