Last Week’s Question of the Week: Name one of the websites where you as an investor can check up on an investment firm or advisor. ANSWER: www.finra.org, www.sec.gov, www.investor.gov or Better Business Bureau website.
HOST: Your topic today I think applies to everyone……deciding WHEN is the right time to pull the trigger to retire?
KLAAS FINANCIAL: Yes, this is an important topic. Let’s take a look at helping you decide what is right for you by asking some important questions.
Question 1 – When would you like to retire?
Many people tell us… YESTERDAY… while others really do say, “I really don’t see an end point. I plan to keep working as long as I am able.”
We would encourage our listeners how important it is to think ahead and decide about making this transition to your post-career life. Many people are fixated on a certain age that they wish to be done with their current job, or at least a sense as to how much longer they can stick it out on the job in terms of physical or mental stamina.
Sometimes the “idea” of when is just an idea that has nothing to do with reality of whether they’ll actually be able to pull it off according to their preferred schedule.
According to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey, the average age most people think about retiring is the age of 65, mostly because of the tie with having health insurance through Medicare at 65. But the REAL reality (According to U.S. Census Bureau data) the average retirement age in the United States is 63, with the average length of retirement being 18 years.
HOST: I would imagine that you need to consider what actually happens when you no longer have a paycheck being deposited?
KLAAS FINANCIAL: This really is nerve-racking for many people, understandably. Many of us have been working since we were 16 years old. It can be a very uncomfortable feeling to not having $$ being deposited that we earned.
Question 2 – Will you be able to maintain your standard of living once your paycheck stops?
So, the key issue is whether you will have the resources available from your retirement savings, pension, Social Security etc. to generate sufficient income to cover your living expenses through a retirement that could last 30 or more years. The question we are asked often, is what percentage of your pre-retirement income should you plan for? A good rule of thumb is that most people will need 70-80% of their pre-retirement income in retirement.
To help answer that question, it would help you in advance to look at utilizing a retirement income calculator as a starting point to see whether your social security, and other income resources will be able to support your current level of spending in retirement. Your retirement planner can assist you with this as well.
The reason to plan for this is so that you can see if any adjustments that you could be making now, such as saving more, spending less, paying down debt, or retiring a little later than you originally planned can improve your chance for success. Once you pull the trigger, we don’t want you to have to return to work.
HOST: I would imagine that making sure your investments are in order would help you determine when might be a better time than others?
KLAAS FINANCIAL: Yes, most definitely!
Question 3 – Are you beginning to shift your investments towards a more conservative blend of stocks and bonds?
If you haven’t already adjusted your asset allocation, begin looking at it as soon as possible. The rationale for this is to avoid getting hit with a great loss a year out or a month out before retirement.
There is no single correct stock-bonds ratio that’s right for all people, but we would suggest that it needs to provide for enough long-term growth (especially for a possible long retirement), while also affording at least some downside protection. Normally we would see people limit stock holdings to 40-60% of their portfolio.
Also, another question to consider:
Question 4 – What have you planned with regards to covering health care costs in retirement?
Medicare does not kick in until age 65 and does not cover all health care costs in retirement. It is estimated that a 65-year-old couple should expect to spend $280,000+ over the course of retirement on health care costs on average.
HOST: I suppose you maybe need to figure out what your perfect retirement is going to look like?
KLAAS FINANCIAL: Yes, our best advice is to be emotionally ready for retirement and figure out what you might do in your retirement.
- Manage your stress and try to live a healthy lifestyle
- Imagine your “someday, your retirement”
- Are you going to stay close at home? Are you going to travel? Volunteer?
- Are you going to devote more time to a hobby? No hobby, maybe you need to start developing this now before you retire.
- Are you going to work on a personal project, like writing a book, or tracing family history?
- Think about what is important to you, maybe traveling, maybe skydiving, volunteering?
- Bottom line, everyone needs an overall plan for your well-being in retirement. (not just a financial plan).
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
