You can prepare for your retirement transition years before it occurs. In doing so, you can do your best to avoid the kind of financial surprises that tend to upset an unsuspecting new retiree.
How much monthly income will you need? Look at your monthly expenses and add them up. (Consider also the trips, adventures and pursuits you have in mind in the near term.) You may end up living on less; that may be acceptable, as your monthly expenses may decline. If your retirement income strategy was conceived a few years ago, revisit it to see if it needs adjusting. As a test, you can even try living on your projected monthly income for 2-3 months prior to retiring.
Numerous articles have mentioned the obstacles women can face as they save for retirement. Turning from the negative, here are some positive factors that may help women save more.
Financial literacy. Learning about investing, retirement topics and the markets is step one. An appreciation and understanding of the potential of equity investment, a recognition that a six-figure or seven-figure sum may be needed to retire – a retirement savings effort proceeds from these understandings.
Financially speaking, how many Americans are truly on track to retire? A recently published white paper suggests that about half of us are approaching our “third acts” with faulty assumptions.
Perception differs from reality. Researchers from the University of Alabama and Ohio State University looked at the Federal Reserve’s Survey of Consumer Finances and assessed the retirement readiness of its 2,300-odd respondents. They determined that 58% of these workers (age 35-60) were saving too little for the future, with a near-majority of that 58% failing to recognize the gravity of their situation. Only 42% of households were sufficiently prepared for retirement, but 46% of households believed they were.1,2
Is it okay to retire today? Many baby boomers shelved notions of retiring during the past few years. Layoffs, the decline in home values, the crushing bear market of 2007-09 – those memories were just too fresh, and their economic effects were still being felt by many households.
In 2015, boomers seem a bit less hesitant to begin their “third acts.” In this year’s CareerBuilder retirement survey, 53% of workers older than 60 indicated they are postponing their retirements. That may not seem a statistic worth celebrating, but five years ago 66% of respondents to the survey said they were putting off leaving work.1
Retirement may not mean a “clean break” from the workplace: 54% of this age group told CareerBuilder that they would try to work at least part-time when retired. In fact, nearly one in five said they planned to continue working 40 hours a week or more. These boomers cited two compelling reasons to keep a foot in the office: household financial pressures and the employer-sponsored health insurance they could count on between ages 60 and 65.1
A new phrase has made its way into the contemporary financial jargon: derisking. Anyone with assets in an old-school pension plan should know what that phrase signifies.
The derisking trend began in 2012. In that year, Ford Motor Co. made a controversial offer to its retirees and ex-employees: it asked them if they wanted to take their pensions as lump sums rather than monthly payments. Basically, Ford realized it could someday owe these former workers more than its pension plan could pay out. The move was clearly motivated by the bottom line, and other corporations quickly imitated it.1