As a nation, we appear to be getting nervous about retirement. We aren’t sure if we’ll have enough money, and we don’t know if we’ll be able to retire when we originally had planned. That’s why you may want to review your financial strategy both before and during retirement.
Before we look at some actions you might take, let’s get a sense of how concerned many Americans are about their future:
• Less confidence — The percentage of workers who are “not at all confident” about having enough money for a comfortable retirement is now at 27 percent, according to the 2011 Retirement Confidence Survey, sponsored by the Employee Benefit Research Institute. This figure is the highest level measured in the 21 years of the Retirement Confidence Survey.
• Later projected retirement age — In 1995, more than half of those surveyed in a Gallup Poll said they expected to retire before the age of 65, while about 15 percent thought they would retire after age 65. But in 2010, the same Gallup Poll showed that just 29 percent of survey respondents expected to retire before they reached 65, while 34 percent planned to work beyond 65.
This lowered confidence and the expectation of having to work past 65 are due in part to the Great Recession and the housing market collapse, which combined to reduce the savings of many future retirees. You can’t control these types of factors, but you can do a lot to boost your prospects for a comfortable retirement — both before and after you retire.
Before you retire:
• Estimate your expenses. Try to estimate about how much money you’ll need each year of your retirement.
• Contribute to your retirement plans. Put as much as you can afford into your 401(k) or other employer-sponsored retirement plan, such as a 403(b) or 457(b) plan. Each time you get a raise, boost your annual contribution to your retirement plan. Also, try to fully fund your traditional or Roth Individual Retirement Account each year.
After you retire:
• Evaluate your employment prospects. You may have retired from one career, but that doesn’t mean you can’t work part time, do some consulting or even open your own business. If you think you’d enjoy doing some type of work, the added income obviously can be quite helpful at this stage of your life.
• Decide when to take Social Security. You can start taking Social Security at any time from 62-70, but the longer you wait, the bigger your monthly payments. Your decision on when to take Social Security should be based on the amount of income you can expect from a pension or your investment portfolio, plus any income you might receive from employment.
• Determine your withdrawal rate. You’ll need to calculate how much you safely can withdraw from your various retirement accounts each year. Your withdrawal rate will depend on several factors, including your lifestyle, estimated longevity, other sources of income and the level of inflation. You may need to adjust your withdrawal rate periodically.
These aren’t the only factors involved in preparing for and living in retirement, but they should give you a good idea of what you need to do to enjoy the lifestyle you’ve envisioned.
Cardella is a financial advisor for Edward Jones, which provided this column.