People are living longer, often creating more time to enjoy retirement. But with these additional golden years also comes the need to finance them. That’s why local financial advisers remind older adults that it’s never too late to plan for retirement.
While today’s average retirement age is 67, people are projected to live more than 20 additional years following the end of their careers. To fund that time, financial planners say seniors need to ensure they have a detailed retirement plan. “The days of somebody receiving a gold watch for retirement and living on their company pension are behind us,” notes Brad Koeneman, a principal at Moneta Group. “And there’s really no silver bullet when it comes to savings. People have to make a decision if they’ll delay gratification today for long-term financial security. We call it the flat-screen TV dilemma, meaning, Do you have to buy that today? versus saving for retirement tomorrow.”
While most people are saving something, it may not be enough to support their lifestyle, depending on their spending level, Koeneman adds. “Oftentimes, it’s an eye-opener when we tell someone they need to save a big number for their remaining working years.”
The best way to ensure you are saving enough money for retirement is to work with a financial adviser, preferably an independent adviser and a fiduciary, says Peter Lazaroff, a portfolio manager for Acropolis Investment Management. “A financial adviser will analyze a myriad of factors, such as current assets and liabilities, savings rate, spending levels, expected retirement date and risk tolerance, and design an individualized investment plan that will allow you to reach your goals.” The most important rule is save early, he notes. “Saving early is important because of the power of compounding, which has a snowball effect on your money.”
While there is no one-size-fits-all percentage of income that should be saved for retirement, Lazaroff advises investing in the following: your company retirement plan up to the percentage your employer will match, a Roth or deductible IRA or Roth 401(k), the maximum allowable amount in your company retirement plan, a traditional non-deductible IRA and a taxable account.
Maurice Quiroga, executive VP and managing director at PNC Wealth Management, recommends saving at least 15 percent of your annual income in a tax-deferred vehicle, and another 10 percent in a taxable vehicle, increasing these percentages at age 35 (when most are stable in their careers) and 50 (after many have finished paying for their children’s educations and can put more focus on retirement funds). Koeneman says a good habit is to save 10 percent of your pre-tax income beginning as early as possible. "If you can’t do this right away, then start with 5 percent, and add 1 to 2 percent every year if possible." And a convenient time to increase savings is when you receive a raise, he adds.
If a person reaches retirement age and realizes he or she has not saved enough, advisers say the plan will need to be altered. "They either need to work longer, have a part-time job, or lower their spending,” Koeneman notes. For most people, he continues, Social Security will not replace the income to which they are accustomed. Quiroga agrees, noting that it is a good idea to plan a financial cushion in case Social Security funds do not come through. Lazaroff also notes that retirement savings should be prioritized above other goals, such as saving for your children’s education expenses. “Your children can always take out loans or apply for scholarships to fund their education. You don’t have that same luxury in funding your own retirement.”
Above all, it’s important to have a plan, Quiroga emphasizes. “Retirement is supposed to be an enjoyable phase in one’s life; and the more you prepare, the happier you will be in the end.”
Retirement Saving Tips
• Don’t delay: Save as early as possible; and it’s never too late to put a plan in place for the future, as well as any unexpected situations such as health care costs.
• Take time: Plan for retirement, including being forced into early retirement by factors such as illness or company changes.
• Be resourceful: Leverage all resources, from your employer to your financial planner and bank, to benefit yourself and your family.
• Save 'til it hurts: Increase contributions to work retirement plans and IRAs, with a focus on tax-deferred, as well as tax-deductible, contributions.
• Be penny-wise: Pay off debt as much as possible and reduce spending to maximize retirement funds.
• Roll with it: The average American will have three to four jobs during their career, so they will have that many retirement plans to roll into one IRA.
• Know thy self: Plan what your retirement lifestyle will be like, taking into consideration your spending habits, health care expenses and timing of social security payments.
—Maurice Quiroga, PNC Wealth Management