By Eve Kaplan, CFP®
Are you tired of hearing about the pending retirement crisis –because you’ve heard about it so much, it’s boring and you think it doesn’t apply to you? You might be in your 70s or 80s before you realize all that “yadda yadda” about “planning” and “saving” actually did apply to you after all…
Of the 10,000 baby boomers turning 65 each day, do you fall into Group 1 or Group 2? Group 1, nearly two-thirds of the 10,000 daily, will rely on Social Security as a major source of income. Group 1 already may be in trouble if these individuals live into their late 70s and beyond. Group 2 — slightly more than one-third of those turning 65 — has saved more and will rely less upon Social Security to fund retirement. If you’re in Group 2, it’s too soon to pat yourself on the back and relax. You need a retirement war chest unless you’re in the top 1% of net worth and/or you have amazingly generous pensions.
We financial planners have our work cut out for us as our clients live longer and face spiraling medical costs. As I look 30-40 years into the future to help my clients, consider:
- Save and save like never before – particularly during those years leading up to retirement. A 5-10% savings rate (including 401k or other deferred contribution plans) may be insufficient if you live into your 90s (and many of you will – like it or not!). Double your savings rate, if possible.
- Retire as late as you can. Work through your 60s and into your 70s, if possible. Employers – belatedly – are valuing older employees more than in the past. Your employer may need your skills and may be willing to scale back your work hours as you mentor younger, less-experienced employees to fill your shoes over time. It’s just good business sense for employers.
- Don’t drain your retirement savings to support your adult children. Sometimes you have to say “no” to safeguard your own retirement.
- Don’t drain your retirement savings to support your aging parents. I’m an adult child and I know it’s easier said than done, but sometimes you have to say “no” to parents, too. Medicare is an imperfect safety net, but it can save you from depleting YOUR own assets.
- If you can afford it (and your parents aren’t too elderly or unwell), consider buying them long-term care insurance.
- Consider long-term care insurance for yourself, too. This important insurance may help you avoid draining your own estate in your last years.
- Defined contribution plans (e.g. 401k, 403b) are more attractive than ever, due to the introduction of low-cost funds and other regulatory pressure to bring plan costs down. Save as much as possible in these vehicles, particularly if your employer offers a match.
- Supplement savings by adding to your cash reserves, non-deferred investment assets and by funding Roth IRAs (if you qualify). Help your adult children fund Roth IRAs if you can afford it.
- Look for new initiatives (currently advancing in the Senate and House) that will increase the availability of 401k plans amongst smaller employers (less than 500 employees). So-called Open Multiple-Employer Plans (Open MEPs) should make 401k plans more accessible.
- Consider moving to lower cost areas in this country, or abroad. I’m writing from New Jersey, a beautiful Garden State that also is bedeviled by high taxes and a high cost of living. It makes sense for some New Jersey retirees to move to PA, DE or elsewhere further afield to stretch their dollars.
- Charitable giving is vital to many of us. Balance giving now with the potential to give even more from your future estate (when you no longer need it).
It’s not all doom and gloom. Retirement consists of several phases. Enjoy travel and activities while you’re still able-bodied. A good retirement isn’t only the “do’s and don’ts” listed above. Ideally, it’s a meaningful time of life when you no longer have to think to yourself “can I (or we) afford to do this?”
(C) Copyright by Eve Kaplan, 2016. All Rights Reserved.