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.
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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.
- 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.
- 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?