Make a Plan! Dying at Your Desk isn’t Exactly a Retirement Strategy
Are you reading this article at your desk? You may be, as studies show employees spend 1-3 hours surfing the web at work. But that’s between you and your workplace and none of our business.
Let’s say you are at work, going through your to-do lists for the day, the week, the month. Bills, work deadlines, dance recitals, doctors appt. etc. our schedules overflow and it’s hard not to feel a little overwhelmed. Now think about this: have you been saving for your retirement and more importantly, for this article at least, when are you thinking you'll want to do it? The big R. For some of you, the answer is clear, you've been maxing your contributions, and you are scoping that little condo in Boca and just counting the days. But for many, the question of when and how you will retire is a lot harder to answer. Retire too early and you may not be able to afford it, retire too late and you may have spent all your life working and saving for a period you don't get to enjoy. It’s why retirement is 10th on the list of the top 43 most stressful life events, put together by the American Institute of Stress.[i]
The biggest fear for most people thinking about retirement is if they will be able to afford it. Considering only 40% of Baby Boomers are actively saving for retirement and the vast majority do not have enough to maintain their pre-retirement standard of living.[ii] The fear of not having enough is a valid concern. Even with the social safety nets of Social Security and Medicare, there are still a lot of daily costs, mainly housing, medications, and unforeseen expenses, that can cause anyone getting close to leaving work feeling a little jittery about the prospect. There are also psychological worries about retiring, especially if you worked your way up in your career, have a professional title, or have merged your title and your identity. You may fear boredom or your own mortality. All the above-mentioned fears and worries are valid and the sooner you explore them, the better prepared you will be.
Can You Afford It?
As this is often the biggest fear, it is probably the first to address. First off, if you are reading this article and are not making the maximum contributions to any employer-match savings, 401(k), IRA, etc. do so now. If you are over the age of 50, you can make up for lost time and instead of maxing out your contribution at $6,000 you can bump it to $7,000. Taking advantage of direct deposit can also be your friend as it can move money from your paycheck into your savings, and sometimes out of sight, out of mind can be the best way to save. The Boston Center for Retirement Research (CRR) report that workers who start saving at 35 and plan to retire at 65 should be saving 15% of their yearly income, in reality though, only about 18% of workers do so.[iii] So how much do you need? Really. First off, make a budget, factor in your bills and expenses, your debts, money for non-essentials, all of it and look at the number. Does your current savings and investments, combined with Social Security and any pensions, etc. cover it? If not, then you need to figure out how to get to a number that is more sustainable. It may involve downsizing your home, for example, to something smaller and cheaper to keep. It may involve getting rid of a vehicle, relocating, or making some lifestyle adjustments. It may depend on your getting serious about saving now. The good news is, the more you crunch the numbers and think ahead, the more prepared you will be. Seeking the help of a qualified financial advisor with a specialty in retirement planning is also a good option to get you on track.
You are eligible to claim your Social Security benefit at 65. You may claim it earlier, but with a penalty that will deduct the amount you collect. If you want to get the max benefits from Social Security, delaying as close to the age of 70 can net you 135% of what you would collect if you claimed it early. As of January 2019, the average Social Security check was $1461 a month.[iv] If you deduct for Medicare premiums and income tax withholding, you would be left with under $17,000 a year, which would be very challenging to live off of. Social Security is best used as it was intended, as supplemental income.
What Will You Do?
We’ve talked about money and that’s good. Retiring will mean the loss of the regular paycheck (for most) so figuring out how you will pay for it is important. But another, in some ways equally important issue, is what will you do once you retire. We often see the clichés of people on the golf course or beach, but is it realistic? And even if you love to golf, you can't do it every day. So how will you spend your days? Especially if you've had an all-consuming career, or if you were the type to get most of your social interaction from work, you may find yourself kind of lonely and bored once retired. Loneliness can be bad for you, in fact, it can be as bad for you as smoking or obesity.[v] Idleness and inactivity can worsen our health, both mentally and physically, as well.[vi] On top of that, spouses often have very different and conflicting ideas about retirement. The positive thing is, the more you think about this in advance, the better prepared you will be for your retirement. This is the time to think back on your life, on things that you loved but could never focus on because of work or life, if you’ve always wanted to paint, or dance, or garden, or learn a language, or cook, or go back to school, this is the time to do it. Changing the perspective from something ending to something beginning can make all the difference. You have a lot of valuable skills and while your career may be wrapping up, those skills and knowledge don’t have to go to waste.
Retirement, like most of life’s major events, can be both exciting and terrifying at the same time. Taking the time to look over your financial health and your emotional health around retirement can help you better prepare yourself and be ready when the time comes.
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About the Author
As co-founder and Chief Investment Officer, Mike brings real-time investment management experience to clients. Prior to forming FC Wealth Solutions, he spent 15 years working on Wall Street as a trader and portfolio manager for some of the industry’s most well-known firms. His previous experience at Morgan Stanley, Royal Bank of Canada and Hutchin Hill Capital gave his valuable experience in institutional money management. His focus on continual research helps him identify macro trends and strategic investments for client portfolios. His research has enabled him to develop many of the rule-based investment strategies the firm uses for managing client assets and monitoring the markets.