One needs only to look at the studies that have been done about retirement to see that there is a large gap between the timeline that people say they are going to retire and the actual date that they are fully retired. Indeed, in the last couple of decades the actual retirement age has inched ever closer to 62 which is coincidentally the same year that a person can start receiving their Social Security benefits. Retirement, something that in years past was very specific (you’d even have a party!) Is today more of a process that is taken care of in phases then on an actual, specific date.
With these changes come changes in retirement investment plans and, in order to help you keep up with those changes, we put together a blog with a few ideas, bits of advice and strategies that should fit the new retirement system a bit better and help you to retire with more cash in your coffers. Enjoy.
For men and women that are in good mental and physical shape, working a few years longer is one of the most viable ways of adding to your retirement funds as well as putting off collecting Social Security. On average, a person should be able to generate at least an additional 2 years of retirement income during one year of regular work. Depending on your income this can be a substantial amount of money.
The longer you put off collecting Social Security the better. For every year that you put off collecting up until the age of 72, your Social Security benefits will increase by 8%. Even better, if you work long enough to raise your lifetime wage base, your Social Security benefits will increase.
Many people don’t realize how many years that they could possibly live while in retirement. On average, a man will live to be 73 and a woman 75. If you retire at the age of 65 that means that, if you’re a woman, you’ll live another 20 years and if you are a man another 18. While this information isn’t going to affect your savings one way or another, it should stress the fact that you need to put as much money aside as possible if you want to be able to take care of yourself financially for what amounts to 2 decades without a job.
When it comes to actual investing in stocks and bonds diversification is the key, something that will give you a good balance between stocks and bonds and the amount of risk that each have. As you get older, at least into the next two decades, at least 20% of your portfolio should be in foreign holdings because that’s where the world’s economic growth is going to be found during that time.
As the saying goes, it is always better to err on the side of caution. That goes for your retirement investments as well, and forgetting that they are a risk or owning an extremely risky stocks as you go into retirement is probably not a great idea. Indeed, it’s better to expect that there will be a lot of volatility in your investments and set up some reserve funds for yourself so that, if things go south, you won’t be quickly forced to sell off your investments. It helps to be as flexible as possible and so avoid locking too much your funds into holdings that, for whatever reason, can not quickly be changed.
In the aviation industry there is something known as the ‘glide path’, the path that a pilot follows into an airport, its runway and safety. In retirement the glide path refers to changing the mix of stocks and bonds in your portfolio, changing them gradually so that they are less and less risky and more appropriate for your age and situation. If you don’t have a financial advisor and you’re not comfortable with actively managing your own investments, you might want to invest in target date mutual funds, geared to your age and situation and set to automatically shift your investment holdings and keep you on a specific, and safer, glide path.
One item that many soon-to-be retirees overlook is the fact that their medical expenses will almost definitely be getting higher. Having enough insurance, an emergency fund and planning at least an extra 20% for medical expenses are all financially intelligent moves and can be a lifesaver if an accident occurs or someone’s health takes a turn for the worse.
The path to retirement is different for every man and woman and, if you’re not sure if you’re on the right track you definitely should seek the help of a trained financial advisor. Planning well for retirement and then continuing to control your finances after you’ve retired are both vital to your financial health. We hope that the tips and advice that we gave you today have helped. See you back here soon.