Retirement Strategy: How Much Should I Save?

Have you ever wondered "Will I outlive my retirement money?" This is the single most common fear I hear voiced while meeting with clients who are starting to prepare for their retirement years.

Getting TO retirement, getting COMFORTABLE with retirement, and determining how much money you need IN retirement is a process. It requires a plan. Building that plan requires an intricate awareness of the steps necessary and the ability to execute those steps so you don't have to guess or pull numbers out of thin air.

The process should include looking at your current financial situation vs where you want to go based on your goals, time horizon, and risk tolerance. The process should take into consideration ALL potential sources of retirement income and have a pretty good understanding of what your income would look like each year in retirement.

We all have our "Rosey" version of the way retirement should be, but without proper planning, your future may unfold in ways you did not predict, nor want. It's very important to not think of "reaching retirement" as the goal but you should be looking to make sure you can survive all the way through retirement. As you look into the future you should consider some of the following factors that can suddenly arise.

You may see retirement as an extension of the present rather than the future.

This is a very normal thought as we are all humans and live in the present, but time stops for no one, and tomorrow - the future will arrive. The costs you have to shoulder later in retirement may exceed those at the start of retirement. With the miracle of modern medicine, you have pretty good odds of living in retirement for 20 or 30 years if not more. We MUST take a long-term view of things.

You may have a health insurance gap.

If you retire before age 65 and are not yet eligible for Medicare, how will you get healthcare coverage? It is very possible you will have to pay 100% of the cost.

If you become disabled or seriously ill, working may be out of the question. In that scenario, how will you make ends meet?

Age may catch up to you sooner rather than later.

You may stay fit, active, and mentally sharp for decades to come, but what if you don't? If you become mentally or physically ill, you will need to someone or multiple people you can trust to help manage your finances.

You could be alone one day.

As anyone who has ever lived alone realizes, it is very difficult to simply live on one person's income. When you are elderly, keeping up a house or even a condo can be tough - that problem is magnified if you're alone. Driving can also be a concern. If your spouse or partner is absent, will someone be available to help you in the future?

These are some of the blind spots that can surprise anyone in retirement.

They may quickly affect your money and quality of life. If you look ahead and plan for as many of these as possible, you will be setting yourself up for better outcomes later.?

If you're like most Americans, your workplace retirement account (401k) will play a critical role in your overall retirement strategy. However, some people have gone further with such accounts than others, especially recently, and much has been written about it.

Journalists love to write about classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Unfortunately, we don't always hear about the financial missteps that plague retirees.

Calling them "mistakes" may be a bit harsh, as not all of them represent errors in judgment. Nonetheless, the fact remains, whether they result from ignorance or fate, you need to be aware of them as you approach and enter your retirement.

Timing Social Security.

I'm sure you've heard the statement "I'm taking my social security as soon as possible." There is nothing wrong with that, but Social Security benefits rise about 8% for every year you delay taking them. Waiting a few years to apply for benefits can position you for a much higher guaranteed income in retirement. Although filing for your monthly benefits before you reach Social Security's Full Retirement Age (FRA) can mean comparatively smaller monthly payments, it really comes down to your personal circumstances.

Managing medical bills.

Medicare will not pay for everything. Unless there is a fundamental change in the program itself, you may have a number of surprises and out-of-pocket costs, including dental and vision care.

Underestimating longevity - The Risk Multiplier.

Actuaries at the Social Security Administration project that around 33% of today's 65-year-olds will live to age 90, with about one in seven living 95 years or longer. As we continue to age as a population and live "well" while in our late 80s and 90s - all of the risks multiply. The prospect of a 20- or 30-year retirement is not unreasonable and I would even argue it should be expected. Don't make the mistake of many Americans who are assuming that our retirements might duplicate the relatively brief ones of our parents. We all know what happens when we ASSUME.?

Withdrawing strategies.

You may have heard of the "4% rule," a guideline stating that you should take out only about 4% of your retirement savings annually. Some retirees try to abide by it, but others routinely withdraw much higher percentages. Why is this? Some experts speculate: In the first phase of retirement, people tend to live it up. More free time naturally promotes new adventures and an inclination to live a bit more lavishly. If you are planning on the 4% rule or more you could be in for some major problems down the road.

Talking About Taxes.

Not only is it a good idea to have both taxable and tax-advantaged accounts in retirement - but it’s also an absolute MUST! Assuming your retirement will be long, you should want to create the flexibility to decide when and how you are taxed. That requires you to decide when and how to contribute. If you are already retired, you may want to re-arrange how your current investments are set up and what types of accounts they are. The idea is to get as much money into the appropriate taxable or tax-advantaged account, based on your goals.?

Putting college costs before retirement costs.

I always say, "You have to take care of #1 first" when it comes to saving and planning for your own retirement. There is no "financial aid" program for retirees and no "retirement loans." Your children have their whole financial lives ahead of them.

Retiring with no investment strategy.

Expect that retirement will have a few surprises; we just can't avoid them, but we absolutely need a plan for them.

These are some of the classic retirement mistakes. To help you avoid them, take some time to review and refine your retirement strategy with the help of a trusted financial professional.