The Fourth of July commemorates the adoption of the Declaration of Independence on July 4, 1776, declaring independence from the Kingdom of Great Britain. When considering your own financial freedom, what smart steps can you take today to confidently declare your independence from your job and strive to live the retirement you desire? With many people blessed with longevity and living well into their 80’s and 90’s while experiencing a retirement longer than their working years, don’t leave anything to chance.
Logic would assume we would automatically set aside a percent of our income today in order to maintain a certain level of consumption in retirement. Unfortunately, we live in an “instant gratification” society, and do not worry about our own financial futures. Neurological studies have found that when we think about our “future self,” we might as well be thinking of a complete stranger.
‘Retiring Boomers Fall Short” (WSJ 2.19.11) states that the median household over age 60 has less than 25% saved to maintain their standard of living in retirement and are extremely dependent on Social Security. Many people today are still not saving enough for retirement and are living beyond their means. Living “the good life” while “cash-poor” is the epitome of “fur coat and no knickers.”
You may be familiar with the aphorism, “you can’t see the forest for the trees.” That represents one kind of bad judgment: Being so focused on the short-term details that larger issues are lost. In many cases, people are so focused on getting by today in the ‘grind’ of life – and are greatly surprised by how fast retirement actually arrives.
Create a retirement plan to help map out your future path. This will help you to determine the realities of your current financial situation while holding yourself accountable for your actions (like a fitness or diet regime). Just remember in the end, you can’t put your retirement on a credit card.
Consider to follow the following 5 retirement tips:
1. Create a comprehensive financial plan and work it annually with a financial advisor. By declaring and writing down your retirement goals on paper, you may develop a more realistic (truthful) picture of where you stand today to achieve your goals by a specific age along with actual cash flow and retirement projections.
Set SMART goals to define your ideas, focus your efforts and to better use your time and resources productively to help you get on the path to success. To make your goals S.M.A.R.T., they need to conform to the following criteria: Specific, Measurable, Attainable, Relevant and Timely.
Consider that everything that happens in life is a small part of our journey. We can choose to be passive or we can be proactive and not leave things to chance.
2. Earmark 13X your final 3 years (average) salary to retire as your lump-sum goal. For example, at $80K per year, you would need approximately $1 Million dollars in savings to meet your retirement lifestyle expenses in addition to Social Security (assuming a 4% portfolio income distribution rate.) Translation: every cool $1M dollars can provide approx. $40K/year in portfolio income from a diversified portfolio. Just knowing your lump-sum “retirement number” can be an excellent ‘wake-up’ call to action.
3. Put your retirement savings on automatic and invest wisely: Save 15% or more of your annual gross pay for retirement. Utilize your employer 401(K) if you qualify, as many employers provide a “free” match. Invest your savings in a diversified portfolio based on your risk tolerance, financial goals and time frame. How you save and invest your money with each paycheck can make a significant difference in helping to meet your long-term goals over time. With time on your side, the power of compounding can be your best friend. Make sure that your money is working hard for you.
4. Delay retirement unless you have enough money to retire. You may forfeit about 7% per year in Social Security income benefits if enrolling before your full retirement age (FRA). For example, if your FRA is 67 and you retire at 62, you would lose 35% in benefits. By delaying retirement, saving more and taping your nest-egg later in life, you may also reduce the chance that you may outlive your money and end up moving in with your kids. If you are married, divorced, a widow or widower, you may also want to review any spousal benefits that may apply to your specific situation.
5. Update your will and estate plan with an attorney. Estate planning is about more than just “protecting and transferring” your assets to reduce your exposure to probate and taxes. It’s about protecting your health and family decisions. Make sure to have a living will, durable power of attorney and medical power of attorney completed along with your HIPPA release form. Provide guardianship instructions for minor/children under your care. Also make sure to review your health, life, and disability insurance coverage to protect your health, wealth, family and retirement goals. Many people plan a vacation. But they don’t plan for the worse or are in denial of what could happen to them.
This information is not intended to be a substitute for specific individualized legal advice. We suggest that you discuss your specific situation with a qualified legal advisor.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Loss of principal may occur.
No strategy assures a profit or protects against a loss.
Investing involves risks, including possible loss of principal.