This was a guest post of mine that was posted over at Moolanomy. Check out the original post here.
Retirement is just around the corner. You think you’ve saved enough; but with the recent market drop, you are just not sure. Your retirement accounts have taken drastic blows and now you’re in doubt if you will ever retire. You decide it’s time to sit down with a Certified Financial PlannerTM to see if you are still on track for a successful retirement. Here are the 5 things that you don’t want to hear:
1. You Will Have To Work Longer.
Unfortunately, this might be the reality of many hopeful “soon to be” retirees. If you have taken a substantial hit in your portfolio, and you hadn’t saved enough to fund your retirement needs, this may be a sad truth that you have to face.
With the rising cost of health care and increasing cost of goods, your nest egg may be depleted where your employment income is the only thing keeping your savings account from dwindling down even further. By working longer, it will allow you to do # 2…
2. You Need To Save More.
If retiring is not happening next week and you still have a few more working years ahead of you, now is the time to sock away as much as you possibly can afford. What that might mean is eating out less, maybe putting off a vacation here or there, or not remodeling the living room that drastically needs it. All those extra savings will either go to funding retirement vehicles, which are your 401(k)’s or IRAs, or just putting it in your emergency/savings account.
3. You Will Have To Live On Less.
Many retirees, or soon to be retirees, assume that there lifestyle will remain the same once retirement comes. In fact, 6 out of 10 workers believe that their standard of living will not change when they reach retirement. Many of them fail to plan for longevity; meaning that they don’t have a good sense of how much they actually will need for their actual time in their retirement years.
This is a wake-up call to most when realizing that their retirement assets and Social Security, or any pensions, are not sufficient to cover their month to month expenses during retirement. Coming up with a budget and figuring a safe amount to withdraw off your investments to make up the gap between Social Security and/or pensions is a must if you want your nest egg to last you throughout all your retirement years.
4. You Need To Take More Risk.
In the light of what’s occurred in the market the past year and half or so, this might sound completely absurd. This is mostly based on two different scenarios. 1. The person has not saved enough for retirement and just to try and keep up with their income needs they are forced to take more risk to generate income. Obviously, in the past year this strategy would have backfired, but if the are unwilling to back to work or live on less; this leaves little options.
2. The person has not taken into consideration the cost of living. Many times I have seen retirees that once they hit retirement, they shift their whole retirement portfolio from the stock market into 100% bonds and/or CDs/money market. If your retirement portfolio never has a chance to grow or appreciate, the portfolio will most likely be eroded away by inflation. Cost of living is constantly rising with no end in sight. A retiree must have a portion of their portfolio in the market to battle inflation, or that hard earned dollar today will have far less purchasing power in the years to come.
5. You Have To Work Longer.
Sorry to bring this up again, but this is usually the one thing that people don’t want to hear. By this point you have put in several years at your employer and retirement is so close you can taste it. Unfortunately, the reality is that you just haven’t saved enough. Or maybe you thought you did, but what the market has giveth has now taketh away. Whatever the reason, your daydreams of sipping Pina Coladas on the beach are just that: daydreams, while you are still sitting at your office desk staring out your window wondering what you could have done differently.
Much of this could have been avoided if you had taken the time to meet with a financial planner in advance. Often time, people put off planning for retirement until it’s too late. A study showed that 43 percent of workers who did a retirement needs analysis did in fact make changes to their retirement portfolios. The most common change: Save More.
When reviewing portfolios, I often see subtle changes that could have been made years ago that would have made a huge difference today. The lesson learned is: Don’t procrastinate. Review your financial situation annually to make sure you are on track. That way when you do meet with your financial planner regarding the possibility of retirement, you instead hear, “Congratulations, you are now ready to retire.” Doesn’t that sound better?
Securities offered through LPL Financial, Member FINRA/SIPC
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I have never really thought about it before but it must be rough when someone comes into your office and says, I want to retire in 5 years I have been saving my whole life. You look at what they have and they may not be able to retire for another 15 years, then you have to explain that to them. I can imagine people aren’t very receptive to that.
I’m afraid my mother is in that situation right now – even as a 40 year veteran RN with significant work related injuries that currently has her on disability.
Unfortunately so many people have to work longer, but the larger question is, CAN they (physically?)
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Well, perhaps you should see a financial planner every year but then again, maybe not. I have a financial planner and she advised me to buy stocks and mutual funds in September 2008 that were the worst performing stocks/funds I have ever seen. It seemed that she recommended them almost off-handedly at the time–as if anything would do. Well, now they’re all 50-60% less in value since time of purchase. Did she call me in November, December, or January to recommend selling them? No, but she called in February to schedule a semi-annual review as if all was just hunky-dory. Well, she didn’t just lose $20,000 in one of her portfolio accounts. I felt she could have AT LEAST called to check in during one of the WORST economic/market downturns in the last 50-odd years.
@ Christa
That’s an unfortunate circumstance that I hear too often. After June of 2008 when the markets started to drop, I began implementing a Dollar Cost Average strategy for those that wanted equity exposure. In the months of October and November, we put that strategy on hold until the “madness” wore off. I don’t know if it was the right strategy or not (only time will tell), but I know that it helped preserve a good chunk of principal which those clients are thankful for.
Communication is definitely the key. Make sure those investment options are suitable for your needs and goals and you FULLY understand what they are invested into. Too often generalities are used explaining investments and people need to know exactly what they own. Good luck with your journey.
Take More Risk is an interesting item.
Usually I have thought of it terms of the older you are the less risk you can afford to take. Do you see annuities as a legitimate way to mitigate risk while still providing better returns than bonds?
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One thing I don’t hear financial planners talk about is adding revenue streams. I left my job of 20 years after finishing an MBA and started my own business (at age of 56). Two great benefits: I love what I’m doing (no longer beating my head against the wall) and my business continues to grow. I never anticipate “retiring” now. I’m enjoying my work/life too much.
Another point for one of the commenters. I initiate a call with our financial planner every 6 months. I don’t wait for him. He agreed to this with no problem.