Saving for Retirement the Wrong Way
Focusing on retirement savings may not be the best way for you to enter into a retirement mindset.
For one thing, most people take on unrealistic views of two key components to retirement. How long their money will last and how long they will live. This viewpoint means a lot of people go into their retired years woefully unprepared.
This also means an adjustment in how we think about funding out futures is necessary.
Instead of focusing on what you are saving, you should instead focus on an income stream. This means shifting your focus away from setting aside your funds at a current rate. But also, targeting a specific sustainable income and adjusting your savings practices accordingly that will help stop saving wrong way.
Why Income Is Important During Retirement
For example, many individuals don’t believe they will live past the age of 80. With breakthroughs in technology and healthcare innovation, the changes of living well into one’s 80s and even, potentially, 90s is a lot higher than it used to be. As life expectancies increase, so should savings.
The estimation of how far your money will go is another aspect of retirement that most Americans get wrong. According to one survey, the average retirement-aged baby boomer expects to have roughly $45, 500 in annual retirement income; however, the average retirement savings comes to a staggering total of $132,000.
Are you shocked? This means the annual retirement income for most individuals would actually be closer to $9,129.
Many individuals want to supplement their retirement with Social Security, which is all fine and good – until you consider the numbers.The average retiree receives up to $1,335 monthly in Social Security benefits, or $16,020 per year. Combine this with the average annual retirement income of $9,129, you’re looking at an estimated annual income of $25,149, roughly half of the average annual average working income.
Consider your monthly expenses: rent, mortgage, health insurance, car payments, gas and utilities. Is a little over $25,000 a year (approximately $2,095.75/month) enough to cover these expenses?
Remember, health care costs rise with age, and you also may need to factor in inflation for essentials like groceries. Should you need to stay in a nursing home, you average annual cost will amount to roughly $6,965. If you’re planning on moving to a retirement community, your average monthly cost will hover between $1,500 and $3,500.
If you’re starting to panic that your savings won’t be enough, you’re not alone.
To mitigate this gap between what retirees think they have and what their investments will actually be. BlackRock Investing the conductors of the survey mentioned above, have come up with a tool called iRetire. This tool will quickly project savings into lifetime income. It will also illustrate how adjusting certain variables in your savings plan will change the entire equation and its outcomes. This allows planners to move toward a plan that targets a desired retirement income range.
By setting an income target and understanding how to reach that target, BlackRock is hoping to make retirement saving more realistic than setting a savings goal and figuring out how much you can draw down each year.
This is also why a solid retirement savings plan should come with a solid financial planner. Someone who will be able to help you figure out how to have a successful plan. They will show you how by following variables that work together to impact your retirement. Such as how much you save, how long you work, the rate of your investment and how much income you want in your retired years.
Why You Need an Adviser to help you to stop saving for retirement the wrong way
Saving the appropriate amount for retirement is complicated, which is why we recommend speaking to a financial adviser in addition to utilizing the online and employer-sponsored savings tools available to you. A financial adviser can help answer your questions and can take into account your unique situation and come up with a realistic savings plan.
Qualified planners are trained to deal with a lot of personal financial topics and can help you set financial goals and priorities while recommending steps to take to meet these goals. Whether it is to be allocating your investments, insurance advice or how certain savings moves and tools with impact your taxes or estate. Additionally, a planner can help you with specialized needs, such as working with attorneys to protect your trusts and estates or businesses.
What to Look for in a Financial Adviser
So now that you know you need a financial adviser, it’s time to figure out what to look for.
A good place to start is to look for a planner who has credentials and to determine what these credentials mean. A broad spectrum example of some credentials to look for includes CFP (certified financial planners), PFS (personal financial planners) and CFA (chartered financial analyst). These credentials denote that a planner has a proven level of competency with planning and investing. Make sure you verify the planner’s credentials with the Financial Planning Association and the CFP Board of Standards.
A lot of advice out there will tell you to speak to friends and family to get planner recommendations. However, we don’t think you should rely too heavily on the advice of others. Your needs and retirement goals are different from the needs and goals of your neighbors, friends and family.
Our recommendation? Start with us!
Our financial advisers will take the time to listen to you and your needs and wants. If we can’t help you, we’ll use our vast network of strong financial connections to point you in the right direction. Our advisers are experts at what they do, and are committed to bringing the core values of integrity, community service and corporate responsibility to you.
Take charge of your future and give s a call today to see how we can help.