When we are in our twenties, our thirties, or even our forties, we believe decisions about our financial future are a long way off. Yet, faster than we expect to, we arrive at the day when decisions about how we choose to enjoy our lives in our 60s and 70s become imperative. Planning our financial future is as important as other disciplines — like exercise or eating right — that we undertake for our future. Knowing this, one might expect everyone to be deliberate about tomorrow.
What is required to live the way we want in retirement?
What are your dreams for your future? Will you stop work and travel the world? Or will you decide to work only part-time and delve into your hobbies? Will you downsize your home to save cash and live tiny? Your dreams can be funded by small steps you take today.
Edward Jones Financial Planner Todd Davenport says that when it comes to their expectation of how much they will need in retirement, many people are too conservative. “You’re going to live as long in retirement as it took you to save for retirement.” Living longer is a good thing, and if we plan for it, we can enjoy a financial quality of life which fits our preferences prior to retirement.
According to retirement planners we talked with, people are not starting to save early enough. Davenport recommends, “Start with your first paycheck. It doesn’t take much, but what it does take is discipline to save something every pay-period.” Since most of today’s workforce will not have an employer pension fund, it’s imperative that we save for ourselves.
The power of compound interest, applied to savings set aside early, will allow even a modest saver to have resources to make personal choices of how they live as they age. “Your goals and purpose should dictate your retirement planning” says Davenport.
Sources of retirement planning advice
As with anything in this world, there are all kinds of ways to get advice. Family. Friends. Co-workers. HR people. Financial advisors. Each of these can be source of wisdom. Getting solid, reliable advice means that you need to be aware of trends which are influencing the opinions people are doling out. Even though it seems simple on the face of it, there is no blanket advice. So anything anyone tells you must be considered in light of your life and your plans.
Recent Federal laws have changed and now compel financial advisors to tell clients of fee generating situations. Called the Fiduciary Rule, “The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients.” While not a trend, these new laws are affecting how advisors work with their clients and are affecting the relationship we set up with our planners.
Trends affecting retirement planning
One trend these days affecting how people are making financial decisions is the use of “robo advisors.” “Robo-advisors are a class of financial adviser that provide financial advice or portfolio management online with minimal human intervention.”
Chatbots have become the norm on Facebook and ecommerce sites. They are helpful for finding suggested gifts for friends, and can be good sources of information about basic health needs, but are they really reliable for your financial planning?
Every person’s life situation is as individual as our fingerprints. So, it makes sense to look to a financial advisor who can help you comprehend your particular circumstances. Especially when you have to deviate from your plans due to unexpected life situations. A person can help you consider options which a software program may not be able to do.
Fear of the loss of Social Security
Another trend which is influencing people’s financial planning is the expectation that Social Security trust fund may be depleted when they reach retirement age. When Social Security was established life, expectancy was lower. “No one expected to live long enough to get Social Security,” says Davenport.
As noted by CBS News,
“Millions of Americans rely on Social Security as a guaranteed form of income to last throughout their retirement years. According to the Transamerica Center for Retirement Studies' 2016 survey of workers, 77 percent of employees are concerned that Social Security won't be there for them when they're ready to retire. Almost half cited reductions or the disappearance of Social Security benefits among their greatest retirement fears.”
“If you don’t believe Social Security will be around when you retire, save now,” says Davenport.
Brady Quirk-Garvan who is an advisor with the firm Natural Investments, LLC AKA Money with a Mission, observes that people are living longer, and are healthier longer. This trend impacts the amount of money you need to have set aside for your future. Longer living means you can easily deplete your funds sooner, and ought to influence us all to save earlier to take advantage of compounding interest.
Working in retirement
Even if you are still planning to work after 65, as 19 percent of people over 65 were doing in 2015, you’ll probably be working part-time or even in a different capacity.
CBS News reports, “Many are envisioning a transition that may involve flexible work arrangements, shifting from full-time to part-time or working in a role that's less demanding (39 percent). Some want to continue working until it's no longer possible (25 percent). Only 26 percent plan to stop working when they reach a certain age or savings goal.”
Quirk-Garvan says “People who love their jobs often continue their work, but in a new way — becoming consultants — which allows them to share their career long wisdom.”
Remaining in our homes or downsizing, considerations for both situations
Historically, people stay in their homes Quirk-Garvan says. Though for some of us, our homes are our greatest assets and freeing up money to fund our retirement leads many of us to downsize.
Downsizing generally means selling your home and moving to a home that costs considerably less to live in and maintain. For some people this may mean choosing to move to a new construction home in a 55+ community.
A new construction home can be less costly to run and maintain given new technology and systems that save energy. While savings may come from lower electric and gas bills, home mortgages may be no lower than the larger houses people have sold. Many who are retiring to active adult communities are not skimping on luxurious touches in their new home.
Downsizing to others means choosing an existing home which costs substantially less to purchase. The difference between the funds realized from the sale of one and acquisition of another home is invested to help build retirement savings.
The trend towards downsizing has another advantage, it allows people to live a more carefree life as they travel to visit with friends and family. In his practice, Quirk-Garvan’s experience is that “people want to be active, they want to go see friends, grandkids and see places they have longed to see all their lives.”
Reverse mortgages have become another financial strategy to allow people to access money they have as equity. Davenport ponders the wisdom of consuming your wealth and obligating your home’s in a reverse mortgage. “You’re basically giving your home away after struggling to get it.” While a good resource for those without savings, it might be wiser to save a reverse mortgage for the most desperate of circumstances.
CBS News says, “Given that home equity may be a significant asset for many older workers and retirees, in the years to come, a lot of energy will go into strategies that deploy home equity.”
Take action towards retirement now, not later
Rather than feeling overwhelmed by concerns about retirement, Quirk-Garvan suggests we “have a conversation [with an advisor] to find the fit for how to save for retirement.” He recommends, “Find something you’re passionate about doing” and think of your planning as enabling this in your life. That’s great insight because it’s easier to view our financial future as enabling a positive life rather than a plan for living less. And that’s advice we can all take.
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