Getting Ready for Retirement: A Year-End Opportunity
We are approaching the end of the year. Or the beginning, depending on one’s perspective. And that makes it prime time for taking stock of how one is doing financially and what steps one could consider for the new year.
In a bit of a different take on the time-honored tradition of end-of-the-year lists, Chris Carosa in Fiduciary News offers some ideas
regarding ways to educate employees and encourage them to do something about their financial readiness for retirement.Accept Personal Responsibility.
Andy Bush, Partner and Financial Advisor at Horizon Wealth Management, argues that the most important factor in helping people to be ready for retirement is that they know they should depend on themselves and not others. “A company might offer a fine pension plan — today — but economic forces beyond control of even the more magnanimous owners can cause the company — and its fine pension — to disappear from the face of the Earth. Don’t fall prey to a false sense of security,” Bush says. He suggests that employees act to control your own retirement destiny.
Know Your Goal.
Carosa suggests spending some time discovering the ultimate retirement planning destination before starting. He cites Rick Bender, Financial Advisor at Savant Capital Management, who says, “Employees should think in terms of replacing their paychecks in retirement,” and adds “There’s also a lot variables for each person or couple to consider, such as what state to retire in, family longevity, health, and healthcare.”
A Marathon, Not a Sprint. It’s a journey, Carosa reminds, so he argues that time is on an employee’s side — as long as one starts early enough. “Saving for retirement is not one of those things for procrastinators,” says Carosa.
Think in Small Steps. Carosa suggests that it’s easier to get to be ready for retirement if one can figure out a way to work toward an objective in small, rather than large, steps. He further suggests that making modest, consistent changes makes it easier to adjust and adapt. He adds that slowly increasing a deferral percentage over a number of years will make it less painful than increasing it dramatically in one year.
Think Holistically. Most people only consider a single way to prepare for retirement, says Carosa, but there is much more to consider. President and CEO at The American College of Financial Services Robert R. Johnson adds, “Individuals also must recognize the need for a retirement income plan, not simply have a goal of accumulating their retirement ‘number,’” adding, “It is not about a number. It is about combining life insurance, long term care insurance, annuities, and investments into a cohesive plan that recognizes the individual’s unique circumstances, risk tolerance, and goals.”
Create an Emergency Fund. Carosa says that the need for an emergency fund is one of the most overlooked steps in preparing for retirement, but it can be built into a retirement savings plan.
Put Stock in Your Future. Despite the worth of building an emergency fund, one still should not be overcautious, Johnson argues. Especially when one is young. He added that being too conservative about asset allocations also could be a bad idea. “Two of the greatest risks people face is retirement income shortfall risk and longevity risk,” says Johnson.
Avoid Loans. “Leakage” from retirement funds, which Carosa points out is an impediment to retirement readiness, can result from people considering their retirement funds to be a source of cheap loans. The truth, however, is that they are expensive in that they can hurt one’s ability to have a comfortable retirement.
Do Nothing. Automatic enrollment and auto-escalation afford plan participants the luxury of doing nothing. Says Matt Cosgriff, a Retirement Plan Consultant with BerganKDV Wealth Management, “As more and more plans begin to enlist plan design features like auto-enrollment and auto-escalation, the best thing many employees can do is actually nothing.”