If you’re a baby boomer nearing retirement, how do you turn your individual accumulated assets into lasting retirement income? For years you have saved through your 401(k) plans, IRAs, or non-qualified retirement plans, been provided a pension plan (if you were lucky). Perhaps you have built or taken over a business and have been successful in growing it to be a significant asset, but it is illiquid. There are also social security benefits, but how and when should you file your claim for retirement benefits? The options and timing for these benefits is very important. The result of the decisions in this area of retirement planning could mean leaving thousands of dollars annually on the table. Maximizing social security benefits takes planning. Finally, there are decisions to be made regarding which assets to tap first and how to take income most tax-efficiently.
It is estimated that the boomer generation has tucked $10 trillion aside in retirement plans (FOX News - Bank of New York Mellon Corp.). The 70 million plus aging baby boomers are fast approaching retirement, but what type of pre-retirement planning have they done? If there was ever a time to hire a financial advisor who works in this area of financial planning, this is it.
First, think about what lifestyle you realistically expect in retirement. Second, put together a cash flow analysis of your current spending. Consider adding in when you may buy new cars in retirement, put a new roof on your home, travel and how much to maintain in an emergency account for unknown expenses for the home, car and to help your children in times of need. Third, gather together all assets that are considered working assets for retirement. Fourth, determine your risk tolerance for investing and consider what the future inflation rate may be in the coming years. Also, consider health care expenses. According to Fidelity Investments, the average 65-year old retired couple may spend $260,000 on health care during retirement, plus another $130,000 on long-term care should it be needed.
Now, run the numbers. What is the probability that you have a 75% chance or better of having enough money to last your lifetime? If you fall short of your goals what do you do? Do you change your retirement income goal? Consider working longer before retiring? Maybe consider continuing to work at some level throughout your retirement years?
Of course, running the numbers taking all of these things into account is easier said than done. There are online calculators available, but most of them are very simplistic. Preparing for retirement is the most common reason people seek out a financial planner or financial advisor. Since your retirement goals and resources are unique to you and your family, your retirement planning strategy should be customized, too.