By Katie Phifer
It used to be relatively simple to plan for retirement: You’d just circle the date on the calendar when your pension was set to kick in and have your co-workers start planning your send-off party.
But that was then. These days, retirement planning is much more complex. The number of corporate pension plans has fallen dramatically over the past two decades — from about 92,000 single-employer defined benefit plans in 1990 to 29,000 in 2009, according to the U.S. Government Accountability Office. With the burden of paying for retirement shifting to individuals, personal savings and investments are becoming the primary source of retirement income. For some, this may mean staying in the job market, but with new hours or a whole new career. A recent survey by the Employee Benefit Research Institute (EBRI) found that while only 23% of retirees reported working for pay in the previous year, three quarters of workers said they expected to be employed during their retirement. More people want to keep working in some way, and more and more people are going back to work after they retire.
“In the old days, Grandpa knew how much his pension would pay him for the rest of his life,” says Donna Peterson, Senior Vice President for Retail Retirement at Wells Fargo. “Now the big question is, ‘How much income will your investments generate from month to month during your retirement?’” So what can individuals do to better prepare for today’s retirement landscape? The answer is to plan ahead.
You should begin by exploring the answers to questions such as “What’s my ideal retirement scenario?” and “What do I need in terms of financial support? Setting retirement goals is not just about dollars and sense. It’s also about drawing on your values and hopes to create a satisfying life. Beyond security and independence, what will you pursue during the next phase of your life?
Then, meet with a Financial Advisor to assess your current nest egg and savings rate and estimate how much annual income you’re likely to need during retirement. As you look ahead, be sure to consider that, realistically, you may be retired for a long time, and your finances need to reflect that fact. Consider that those who are currently 65 are projected to live another 18 years, on average. And, if you reach age 85, your life expectancy will extend to age 91.
When working with my clients, I utilize the Wells Fargo Advisors Envision® planning process that allows me to stress-test various retirement scenarios and identify areas of a plan that need adjusting. For instance, you may find that adjusting your investment strategy or boosting your savings rate by a few percentage points a year will get you closer to your long-term financial goals. “The more you save, the better off you’ll be,” Peterson says. “And even a small step-up in savings can make a big difference.”
For many years, experts recommended aiming to replace roughly 80% of your annual preretirement income during retirement. The idea was that living expenses typically decreased in retirement. “But that advice assumed that you were going to spend your retirement in a rocking chair on the front porch,” Peterson says. “These days, retirees are likely to be very active.” And that means higher costs to keep up with a more expensive lifestyle. Because each individual’s idea of retirement is different, everybody will have different financial needs.
It’s important to look at your planned retirement budget realistically, Peterson says. Work with your Financial Advisor to map out essential costs, such as housing, food and health care expenses, and discretionary expenses, such as travel and entertainment. That exercise can help you set credible long-term savings goals based on your expected income needs during retirement.
Evaluating your retirement saving goals is essential whether retirement is near or 30 years away. By considering your savings goals, income needs, and investment strategy, you may find that your current plan is likely to leave you short when it comes time to stop working. Your Financial Advisor can help you review and adjust your current retirement savings plan.
“Develop a plan and stress-test it with your advisor,” Peterson says. “The results can help you understand what’s possible, and also what may need to be adjusted.”
This article was written by Wells Fargo Advisors and provided courtesy of Katie Cuppia Phifer CERTIFIED FINANCIAL PLANNER™, Financial Advisor at 843-982-1506.
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.