When visualizing your ideal retirement, do you have an image of the Caribbean that begins playing in your head … complete with gentle breezes, beautiful beaches, and cool tropical drinks?
When we crunch the numbers to find out how much must be saved today to pay for that Caribbean retirement, or whatever your ideal retirement looks like, we begin to realize how much we will need to down shift our lifestyle today to reach our future goal. The idea of trading a nice lifestyle today for a better one in the future tends to hit us like a cold Wisconsin wind.
Today’s workers are faced with challenges not faced by their parents when it comes to retirement planning. The pension funds that our parents could fall back on, which provided a monthly benefit from retirement age until their death, are on the decline. Corporate America has shifted retirement planning into the hands of their employees by emphasizing employee-funded 401k plans as the retirement plan of choice.
Added to the mix of concerns for today’s workers is a Social Security System that is inadequate to fund future liabilities. Having just received my annual Social Security Statement, it is alarming to hear what the Social Security Administration is telling future retirees. On the front page of my statement, it reads: "Unless action is taken soon to strengthen Social Security, in just 10 years, we will begin paying more in benefits than we collect in taxes. Without changes, by 2040 the Social Security Trust Fund will be exhausted."
Despite the dark clouds that can be seen on the horizon for retirees, there are solutions that can lead to a sunny retirement. Our first course of action should be to understand and acknowledge our circumstances, take responsibility for our future, and not rely on the government or corporations to take care of us in retirement. There is no better time than today to review our retirement plan and make any necessary changes to ensure we remain on track.
Before crunching any numbers or running projections, think seriously about the type of retirement you will have. Will you continue to work in retirement? If your health doesn’t permit you to work, or to work at your current pace, how would this affect your retirement? Will you travel? Do you want to help your children buy a house, or pay for a grandchild’s education?
From this process of identifying what you want your retirement to look like will come an understanding of what you will need to pay for your retirement.
Next, take an inventory of your current situation by listing your assets and liabilities, including your career and income producing potential as an asset that will help fund retirement. If your job is tenuous, with the potential to be eliminated or outsourced, as many jobs in today’s global economy are, then you must account for that possibility and work faster to build a larger nest egg than those who have greater job security. Are there changes you can make today that would put you on more solid financial footing in the future?
You will want to involve your financial adviser in these discussions, because they have the tools and expertise to guide you toward your goals. Your adviser can provide projections for the level of assets you will need, and the savings that will be required for the type of retirement you are hoping for.
After this analysis, you are ready to get started implementing a new savings and investment plan. Remember that you may need to reduce your lifestyle today to realize your future goals. Be sure to review your plan at least once a year. Be prepared to make adjustments as circumstances require.
Your friends and neighbors may not be planning for the same type of retirement that you are, choosing to live for the moment and hope for the future. Planning for a successful retirement is much better than simply hoping for one.
Kevin Reardon, CFP, is a financial planner and president of Shakespeare Wealth Management in Brookfield.
