Is It Time for a Retirement Savings “Checkup”?

READ TIME: 3 MIN 

Retirement planning hasn’t changed all that much over the years. You work, you save and then you retire. But while the mechanics may be the same, today we are facing some challenges that previous generations didn’t have to worry about. Today our life expectancies are longer, companies have moved away from defined pension plans to defined contribution plans which are subject to the up and downs of the market, and most recently the effects of a global health crisis.

While the market ups and downs, inflation and the health crisis may make us feel that things are out of our control, there is no reason to panic.  Instead, take a deep breath and step back for a minute….now sit down and take a look at your overall plan to make sure it is on track with your goals for the future. This is a task that you should be preforming on a regular basis. This isn’t the time to make drastic changes, but to evaluate if any tweaks are needed in your plan.

How much will I need to retire?

First, take a few moments to jot down your actual expenses as they stand today. Think about your priorities in the future and try to determine whether your expenses will stay the same, increase, or decrease by the time you retire. Here are some things to consider as you undertake this exercise:

• While some expenses (like a mortgage and work-related costs) may disappear entirely, other expenses, particularly health care, are likely to rise
• While most Americans are automatically entitled to Medicare coverage once they turn 65, Medicare won’t cover all of your health-care expenses
• Medicare does not pay for long-term care, and statistics suggest that more than half of all adults over age 65 will need some form of long-term care (per a Jan. 2021 report from the Department of Health & Human Services)
• Don’t forget about inflation – Currently, the average annual cost of nursing home care averages around $75,000. If costs rise, at a minimum 3% every year, in 20 years the annual cost would be over $135,000

How will I fund my Retirement?

Consider the three most common sources of income that you’ll likely rely on in retirement:

• Social Security retirement benefits
• employer pension benefits (if your company still offers this)
• individual savings and investments

The first two, Social Security benefits and employer pensions, produce a steady or relatively “fixed” stream of annual income throughout retirement. That’s the good news. The bad news? These two alone may not support your retirement plans, resulting in an income shortfall. And, unless you can also count on receiving benefits from an employer pension plan (and fewer and fewer of us are able to do so), then individual savings and investments, will likely play a major role in funding your retirement.

With so many potential investment options to choose from —401(k)s, Traditional IRAs, Roth IRAs, stocks, bonds, etc.— it’s important to follow an investment strategy that:

• balances the potential for growth with your tolerance for risk
• factors in the potential impact of current-year and future taxes
• aligns with your unique retirement goals

Is Your Portfolio Balance in Line with Your Goals?

You’ve worked hard to build a portfolio of personal savings and investments, with an ultimate goal of using those assets as a source of funding your retirement years. So, how do you convert those assets to income, while balancing considerations such as: liquidity, risk tolerance, anticipated rates of return, and potential tax liabilities?

• Asset Allocation – Asset allocation is a process of deciding how much (or, what percentage of your savings) to put into various types of investments, and is perhaps the most important part of your strategy. During your working years, asset allocation decisions often focus primarily on long-term growth. In retirement, however, they may instead focus on producing regular income, reducing volatility, and better ensuring consistency of year-to-year returns.
• Withdrawal Rate – Another important consideration is your withdrawal rate — the portion of your portfolio that you liquidate each year for your income/living expenses. You’ll need to determine how much you can withdraw each year without exhausting your assets.
• Order of Withdrawal – It’s also important to consider the order in which you will begin accessing funds from various accounts. For example, tax considerations can affect which accounts you should draw from first, and which you should draw from last. These decisions may be affected by required minimum distributions associated with certain tax-advantaged accounts like 401(k)s and traditional IRAs.

Retirement is about YOU – your values, your priorities and your dreams for the future. And, because your life, your family, your current economic situation and your goals and dreams are constantly changing it is important to periodically review your retirement savings plan. Your future self will thank you. If you have any questions or need assistance, please reach out. We’re here to help you make the most of your future.