The Employee Benefit Research Institute has released its 23rd annual Retirement Confidence Survey. The findings showed the lowest level of confidence about the respondent's ability to retire comfortably (or at all) in the survey's history.
While some of this might be tied to the recent economic downturn and the financial difficulties it has caused, I suspect that a portion is also tied to a lack of planning for retirement. For the people in that category, here are four steps to boost your confidence in your ability to retire.
Determine Your Retirement Needs.
Take a look at how you would like to live in retirement and try to place a price tag on that lifestyle, ideally in terms of a monthly figure. Here are some questions to ask yourself:
--Will I stay in my current house or relocate?
--Will I have a mortgage in retirement?
--What do I plan to do in retirement? Travel? Other activities? What will this cost?
--Will I live in a low or a high-cost part of the country (or the world)?
--Will I work during part of your retirement?
Answers are likely easier the closer you are to retirement, but at the very least try to come up with a number or a couple of numbers that might meet your monthly retirement needs to at least give yourself an idea of where you are heading.
Take stock of your retirement resources.
Sit down and list the resources that will contribute to your retirement income. These might include:
--Your retirement accounts including a 401(k), IRAs, taxable investments, etc.
--Proceeds from the sale of a business.
--Selling your current house and downsizing (in some cases).
--Future retirement savings until retirement.
--Potential income earned during retirement.
Do some financial planning.
Whether you hire a professional or you do this yourself, this is a critical step. Basically you want to take your spending needs for retirement, subtract any income streams such as a pension and Social Security, and figure out your "gap." The gap is the amount that you will need to provide from your savings.
As an example, let's say you need $100,000 per year before any taxes are paid. Let's assume that a combination of pensions and Social Security will provide $50,000. This means that you need to be able to fund the $50,000 from other sources, most likely your retirement savings.
Using the 4 percent rule of thumb, this would mean that you would need to accumulate around $1.2 million to provide this $50,000 annual withdrawal.
Examples like these can't be a substitute for actual financial planning, but do serve as a quick indicator.
Your financial planning might indicate that you are on track or that you need to beef up your savings, delay retirement, scale back your lifestyle, or any combination of these outcomes. Some actions that you can take:
--Maximize your contributions to your 401(k) or other company retirement plan.
--Start or fund a self-employed retirement account.
--Contribute to an IRA.
--Look for ways to reduce your current spending.
--Adjust your investment allocation so it is in line with your financial plan.
--Manage your career and look for ways to increase your earnings.
As with many problems, not facing your retirement issues can be a cause of stress and anxiety. Take the bull by the horns and get started today. You'll feel better and more confident about your future.
Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.
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