Q: My spouse and I believe we need to start to plan for retirement. We’re still “young” from a retirement standpoint (early 50s), but we want to make sure we’re planning ahead. Can you please offer us some thoughts to help us get started?
A: I’m always so pleased to talk to people who are planning ahead! This can potentially offer you a much greater opportunity to be properly prepared for retirement. Here are some quick tips to consider as you both begin your planning.
For better or worse, gone may be the “golden” days of retirement where anyone over age 65 could look forward to a time of life spent enjoying leisure pursuits. As people live longer and healthier lives, retirement is taking on a new look — one filled with new activities, longer working lives and perhaps even new careers.
To prepare for this new and expanded version of retirement, you should consider developing a financial plan suited to your specific needs and goals. Following are some key factors you will want to consider.
Plan for the new retirement
Retirement income
A good starting point might be to examine your sources of retirement income. If you pay attention to the financial press, you’ve probably come across at least a few commentators who speak in gloom-and-doom terms about the future for American retirees.
True, there is widespread concern about at least one traditional source of income for retirees: Social Security. Under current conditions, Social Security funds could fall short of needs by 2034, according to the Social Security Administration.1 But the reality is that Social Security was always intended to be a supplement to other sources of retirement income. In fact, today Social Security benefits account for only 34 percent of the aggregate income of retirees.1
Even pension plans, once considered a staple of retirement income, account for only 18 percent (government employee and private pensions combined) of the retirement-income pie.1 In recent years, employers have been moving from traditional defined benefit plans based on salary and years of service to defined contribution plans, such as 401(k) plans, funded primarily by employees.
This shift makes it even more important for individuals to understand their goals and have a well-thought-out plan that focuses on the key source of retirement income: personal savings and investments. Given the potential duration and changing nature of retirement, you may want to seek the assistance of a professional financial planner who can help you assess your needs and develop appropriate investment strategies.
Time
The number of years until you retire will influence the types of investments you include in your portfolio. If retirement is a short-term goal, investments that provide liquidity and help preserve your principal may be most suitable. On the other hand, if retirement is many years away, you may be able to include more aggressive investments in your portfolio. You will also need to keep in mind the number of years you may spend in retirement.
Inflation
Consider this: An automobile with a price tag of $25,000 today will cost almost $34,000 in 10 years, given an inflation rate of just 3 percent. While lower-risk fixed-income and money-market accounts may play an important role in your investment portfolio, if used alone they may leave you susceptible to the erosive effects of inflation. To help your portfolio keep pace with inflation, you may need to maintain some growth-oriented investments. Historically, stocks have provided returns superior to bonds and cash-equivalent investments.2 But also keep in mind that stocks generally involve greater short-term volatility.
Taxes
Even after you retire, taxes will remain an important factor in your overall financial plan. If you return to work or open a business, for example, your tax bracket could change and the income you earn might affect the amount of tax you pay on your Social Security benefits. In addition, should you move from one state to another, state or local taxes could affect your bottom line. Tax deferral offered by 401(k) plans and IRAs may be effective tools for addressing your retirement goals.
Prepare today for the retirement of tomorrow. To ensure that retirement lives up to your expectations, begin establishing your plan as early as possible and consider consulting a professional. With proper planning, you can make retirement whatever you want it to be.
Jeremy R. Gussick is a CERTIFIED FINANCIAL PLANNER™ professional affiliated with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial planning and retirement income needs of the LGBT community and was recently named a 2015 FIVE STAR Wealth Manager as mentioned in Philadelphia Magazine.** He is active with several LGBT organizations in the Philadelphia region, including Delaware Valley Legacy Fund and the Independence Business Alliance, the Philadelphia Region’s LGBT Chamber of Commerce. OutMoney appears monthly. If you have a question for Jeremy, you can contact him via email at [email protected]. Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
*As reported by Financial Planning magazine, 1996-2016, based on total revenues.
**Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers
1Social Security Administration, “Fast Facts and Figures About Social Security, 2015” September 2015.
2Investing in stocks involves risks, including loss of principal. Past performance is no guarantee of future results. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.
This article was prepared with the assistance of DST Systems Inc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with a qualified tax or legal advisor. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult me if you have any questions. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
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