It’s important to know the realities about your financial situation when planning for retirement.
There are a few “harsh truths” about retirement planning, not to mention financial planning in general, that a simple Google search cannot answer for you. With that in mind, we have decided to tackle five major harsh truths about planning for the financial future you deserve in retirement.
Cold Hard Retirement Planning Truth #1: Bear Markets Happen
Bear markets happen, and if you live in retirement for 30 years you can expect to see five to six bear markets during your retirement alone.
Oftentimes, folks hit retirement during a market downturn and think, “what the heck?!” But it is important to understand just how common these bear markets are in reality. A bear market is defined as any time the stock market drops 20% or more. Dating back to 1929, we have seen 28 bear markets, so this is ordinary when all is said and done.
For new retirees, the first bear market immediately before their retirement, or the first bear market within one to five years after they hit retirement, can be most dangerous—if they start withdrawing funds from the accounts invested in the market rather than leaving that money alone until markets come back up. This is called “sequence of returns risk.”
In retirement, we believe it’s important to develop streams of retirement income that can cover your monthly expenses, allowing you to stop withdrawing money from the stock market during downturns.
Of course, this doesn’t mean you need to discontinue investing altogether. Instead, keep some funds invested for the long term, while developing streams of income to cover your lifestyle costs. Working with a financial professional can help you with this process and the up-front planning required.
Cold Hard Retirement Planning Truth #2: You Must Follow a Budget
If you aren’t keeping track of what you are spending in retirement, then adjusting to retirement might be a bit more challenging than you anticipated, to put it mildly.
Oftentimes, folks may not understand exactly how much they are spending and how much of an issue it may pose to their financial situation down the road. Whether your money is going to bills, expenses, unplanned luxuries, travel, or unexpected emergencies, there’s no time like the present to understand your budget and spend within your means to help ensure your financial future in retirement.
Cold Hard Retirement Planning Truth #3: You Might Not Be Saving Enough
Where are you saving for retirement? How much are you saving? Are you even saving for retirement at all?
A 401(k) plan through your workplace doesn’t mean you are going to be able to retire when you want or with the lifestyle you want. In fact, a 2023 survey conducted by Schroders[1] measuring retirement confidence found that working Americans 45 and older believe it will take about $1.1 million to retire comfortably. Unfortunately, only an estimated 21% say they’ll hit that goal.
If you haven’t started saving, you might want to consider having a conversation with a retirement coach to see where you are now, and where you could be in the future, if you start taking a more active role in the retirement planning journey.
Cold Hard Retirement Planning Truth #4: Social Security Is Likely Not Enough
Social Security benefits alone likely won’t be enough to get you through retirement, at least not comfortably.
Social Security was established in the 1930s, when the average life expectancy was only 65. Today, Social Security is intended to supplement your retirement savings as people are living longer lives; it’s not intended to be the sole source of your retirement money.
The estimated average monthly benefit in 2023 for what the Social Security Administration describes as “all retired workers” is $1,837.[2] The maximum monthly Social Security benefit at full retirement age is $3,627 for 2023. Depending on when you started working and how much you earned during your career, your monthly benefit could be considerably less.
Preparing with a financial planning professional who specializes in retirement can help not only maximize the amount of your benefits but also, help walk you through the process of exactly how much your benefits could be depending on your estimated retirement date.
Tip: Set up an account at http://ssa.gov/myaccount to get personalized retirement benefit estimates and get estimates for spouse’s benefits to know where you stand ASAP.
Cold Hard Retirement Planning Truth #5: You Will Probably Need Long-Term Care
Thanks to medical advances and healthier lifestyles, people today are living longer than previous generations.
You are likely to live longer than you may expect. Of course, that is wonderful news, but you do have to consider the financial ramifications that come along with living longer and the type of care you or your spouse may require during your golden years. There is a 70% chance[3] that an American age 65 or older will need long-term care at some point, according to the U.S. Department of Health and Human Services. If that involves an assisted living facility, those costs can be incredibly high, and Medicare will not cover them. That means retirements savings need to last longer and remain at a level that generates a necessary income level.
There are new alternatives to traditional long-term care insurance policies that can help fund LTC costs for the 70% who will need it, and provide other benefits for the 30% who won’t. Make sure you have planned for long-term care as part of your complete retirement plan.
If you would like help with your custom retirement plan, contact Jason Noble, CFP®, RICP® and the team at PCIA Charleston at (843) 743-2926. Jason holds both CERTIFIED FINANCIAL PLANNER™ and Retirement Income Certified Professional® designations and was named number five out of the Top 100 Solo Advisors to Watch in 2023 by AdvisorHub.
Sources:
[1] https://www.schroders.com/en-us/us/institutional/clients/defined-contribution/us-retirement-survey/ [2] https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf [3] https://aspe.hhs.gov/reports/what-lifetime-risk-needing-receiving-long-term-services-supports-0This article is provided for general information only and is not to be construed as financial or tax advice. It is recommended that you work with your financial advisor, tax professional and/or attorneys when tax planning.
Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd. Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).
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