A recent survey by the Nationwide Retirement Institute has unveiled a concerning surge in anxiety about the future among individuals in the final decades of their careers. Shockingly, 69% of respondents aged 55-65 now believe that retiring at 65 is no longer a realistic goal. Moreover, 22% have had to postpone their retirement plans in the past year, while over 40% anticipate needing to work during retirement just to make ends meet.
Impact of Inflation
Inflation is a significant factor behind this growing pessimism. According to the survey, 42% of respondents stated that rising living costs have altered their spending habits, and 27% are saving less for retirement as everyday expenses consume more of their income. More than half expect inflation to affect their retirement portfolios negatively in the future.
Transition from Employer Pensions to Personal Savings
The shift from employer-provided pensions to employee-driven retirement savings plans, such as 401(k) and 403(b) plans, has long been a concern. With pensions, retirement transitions are smoother as regular payments replace salaries in household budgets. However, managing a lump sum in a tax-deferred plan presents several challenges:
- Adequate Savings: Determining how much savings are enough for retirement.
- Withdrawal Rates: Establishing a sustainable annual withdrawal rate.
- Investment Strategies: Deciding how to invest savings effectively.
These questions can be daunting, and many fear retirement might become another form of work.
Optimistic Perspectives
On a brighter note, John Rekenthaler, writing for Morningstar, presents a compelling argument against the notion of a retirement crisis (“There’s No Retirement Crisis,” April 29, 2024). By analyzing U.S. Census Bureau data on relative income changes since 1994, Rekenthaler underscores that real, after-inflation income has surged by 42% for those aged 65-74 and 33% for those aged 75 and older. The average income for those aged 45-54 has grown only 17% above the inflation rate. These figures, along with the 2023 8.7% increase in Social Security benefits, paint a promising picture of retirement, offering a glimmer of hope amidst the concerns for the future.
While Rekenthaler suggests no immediate retirement crisis, he cautions about the broader implications of an aging global population, which could affect future retirement funding.
Expert Advice for Future Retirement Readiness
To address these concerns and ensure a successful retirement, here are essential steps and information for those approaching a future retirement, providing a comprehensive guide that will help you feel guided and supported:
- Comprehensive Financial Assessment
- Savings and Investments: Review all accounts, including 401(k), IRAs, and savings.
- Income Sources: Identify all potential income streams, such as Social Security, part-time work, or rental income.
- Expenses: List current and projected expenses, considering inflation.
- Debt Management: Develop a strategy to minimize debts before retirement.
- Retirement Budget and Cash Flow Planning
- Detailed Budgeting: Create a retirement budget, accounting for essential and discretionary expenses.
- Emergency Fund: Maintain an emergency fund to cover unexpected expenses.
- Income Matching: Align income sources with expenses to ensure steady cash flow.
- Investment Strategy
- Asset Allocation: Adjust asset allocation to reflect a more conservative risk tolerance.
- Inflation Protection: the inclusion of assets in your investment portfolio that can maintain or increase their value in real terms, even in the face of inflation. Such assets include Treasury Inflation-Protected Securities (TIPS) or real estate. Including these assets in your portfolio can help you preserve your purchasing power during retirement.
- Withdrawal Strategy: Develop a tax-efficient withdrawal strategy.
- Social Security Optimization
- Timing: Analyze the best time to start taking Social Security benefits.
- Spousal Benefits: Evaluate spousal benefits to maximize combined benefits.
- Healthcare and Long-Term Care Planning
- Health Insurance: Ensure adequate coverage, including Medicare and supplemental policies.
- Long-Term Care Insurance: Consider purchasing long-term care insurance.
- Health Savings Account (HSA): Maximize contributions to an HSA if eligible.
- Estate Planning
- Wills and Trusts: Ensure wills and necessary trusts are up to date.
- Power of Attorney: Establish durable power of attorney for financial and healthcare decisions.
- Beneficiary Designations: Review and update beneficiary designations.
- Longevity and Lifestyle Planning
- Longevity Risk: Plan for a longer-than-expected lifespan.
- Part-Time Work: Consider part-time work or consulting for additional income.
- Lifestyle Adjustments: Be open to downsizing or relocating to more affordable areas.
Regular, scheduled reviews are a crucial part of this process, empowering individuals to take control of their financial future. By reassessing the financial plan annually, they can stay ahead of potential challenges and make necessary adjustments, fostering a sense of proactive control over their retirement readiness. This approach ensures a secure and enjoyable future, even amid challenges posed by inflation and evolving economic landscapes, providing a comforting sense of financial security and empowerment.
Individuals can effectively alleviate anxiety and construct a resilient retirement plan by diligently following these comprehensive guidelines. However, it’s crucial to remember that retirement planning is a complex task that requires expertise and experience. Maintaining a close partnership with a trusted financial advisor is therefore essential. This approach ensures a secure and enjoyable future, even amid challenges posed by inflation and evolving economic landscapes, providing a comforting sense of financial security.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
