With so much volatility in the current economic climate and uncertainty about what lies ahead, retirement may seem like a distant goal for many professionals. But strategic planning might be even more important as the future of historically reliable retirement income sources like social security and health care assistance like Medicare become even more uncertain.
Retirement is an ongoing planning opportunity and one that should be started sooner rather than later, said Rebekah Barsch, vice president of market strategy and training at Milwaukee-based Northwestern Mutual Life Insurance Co.
“It’s not just planning to a life expectancy number,” Barsch said. “The goal is to plan for long term financial security to get you through the finish line.”
Historically, people in retirement could plan on having a variety of income sources at their finger tips including Social Security, investments, annuities, pension plans and personal savings.
In today’s environment, however, some of those sources are not available or are not enough to rely upon completely.
“You turn your nest egg into a paycheck by creating a robust budget that maps out fixed expenses and variable expenses,” Barsch said. “Today, there are fewer defined benefits available so people need to look at other strategies for income.”
According to the Social Security Administration website, Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. After 2014, cash deficits for Social Security are expected to grow rapidly as the number of baby boomers entering retirement exceeds the number of covered workers paying into the fund.
In addition to adopting other strategies for income, individuals also need to plan for a longer life expectancy than previous generations and higher health care costs.
Risk management surrounding life longevity, health care costs, limitations of Medicare assistance and even the unexpected need for long-term care play a role in saving for retirement.
“The most important thing to understand right from the start is that retirement planning should be about more than just saving and accumulating,” Barsch said. “Any prudent retirement plan requires a strategy that preserves and continues to build wealth, identifies and mitigates risks and provides steady, predictable income for life. The plan should be tailored to each individual’s financial situation and goals.”
According to Barsch, there’s no magic number in regards to saving enough for retirement, but online retirement calculators including Northwestern Mutual’s (www.nmretirementsavingscalculator.com) or the one offered by the Social Security Administration (ssa.gov/retire) can help individuals understand the risks involved in retirement and the planning process. Northwestern Mutual even has a life span calculator that considers 13 lifestyle factors including diet, drinking, smoking and stress to estimate a person’s life expectancy, which could help with retirement planning purposes. The calculator, intended only as a guide, uses numbers based on the latest actuarial data from the National Center for Health Statistics.
“The goal is to create a lifetime income to maintain a comfortable standard of living (in retirement).” Barsch said. “You do that by managing risk and optimizing income. At the end of the day, you want to know, ‘How much money can I spend and still be OK?’ We recommend working with a financial professional who can assess your individual circumstances, create a robust budget and develop a customized plan to generate a lifetime income.”
