To raise awareness about the importance of saving for retirement, Congress has dedicated Oct. 21-27 as National Retirement Security Week. And the evidence shows that increasing this awareness is indeed important. Consider this: Some 50 percent of households are considered at risk of not having enough money to maintain their living standards in retirement, according to the National Retirement Risk Index, produced by the Center for Retirement Research at Boston College.
What can you do to help yourself stay out of the “at risk” category? Here are a few suggestions:
- Deﬁne what retirement security means to you. Everyone has different ideas about what a secure retirement looks like. You might feel that true security means being able to remain in your current home and live independently throughout your life. Or you might only feel secure if you know you can afford to travel or help your grown children or grandchildren financially. Once you’ve identiﬁed your own vision of retirement security, you should be able to determine the ﬁnancial resources you’ll need to reach your desired outcome.
- Create an appropriate ﬁnancial strategy. To achieve your idea of a secure retirement, you can’t just hope for the best – you need to create a comprehensive ﬁnancial strategy, accounting for your various sources of retirement income: Social Security, pensions, employer-sponsored retirement plans, your investment portfolio and so on. You need to know how much you can expect from these sources, and how you can strengthen them.
- Be diligent in your retirement savings. You could spend two or three decades as a retiree, so you’ll want to accumulate as many resources as you possibly can – and that means you’ll need to save and invest diligently during your working years. Put in as much as you can afford to your 401(k) or other employer-sponsored retirement plan – and every time your salary goes up, try to increase your annual contributions. But you can also go beyond your employer-backed plan and contribute to an IRA. In all your retirement accounts, you’ll want to include a reasonable percentage of growth-oriented investments, within the limits of your personal risk tolerance.
- Establish an appropriate withdrawal strategy. Your retirement security isn’t just based on how much you’ve built up before you retire – it also depends on how you manage your assets and investment income during retirement. As you begin to take out money from your 401(k), IRA and other investment accounts, you need to establish a withdrawal rate appropriate for your age, retirement lifestyle and asset level. If you take out too much each year, you risk outliving your resources, but if you withdraw too little, you might be shortchanging yourself on your quality of life. You may want to work with a ﬁnancial professional, who can review your entire situation – income, expenses and so on – and recommend an appropriate annual withdrawal ﬁgure.
These aren’t the only keys to attaining retirement security – but they can still help you move toward that goal. Keep them in mind as the years go by.
[Arnetta Tolley, Financial Advisor, Edward Jones 626-744-2740 or arnetta.tolley@ edwardjones.com.]