Happy Trails: Getting Ready for Retirement

For many businesspeople, retirement is the “last frontier.” Will you have saved enough to live comfortably on a fixed income? Will you be forced to make drastic changes in your lifestyle? Will you be able to live long in relatively good health? Will you happily ride off into the sunset?

Although your overall fate is still unknown, you can improve the likelihood of a happy retirement by assessing your situation and reacting accordingly. Here are several suggestions to follow:

• Figure out how much income you will need in retirement. Start with the amount of income you need right now. Although estimates of your exact requirements will vary widely, you can assume that you will need an amount close to your current income, minus some obvious amounts such as the monthly mortgage payment if your home is or will be paid off and college expenses if the children have already graduated. Caveat: While you may not have to save extensively for retirement anymore, retirement saving cannot end completely.
• Figure out how much you will receive from outside sources. This includes amounts you can expect to receive from Social Security and qualified retirement plans and IRAs if you have been able to set aside funds in these vehicles. Of course, Social Security remains a political “hot potato,” and its future remains somewhat uncertain for Baby Boomers and subsequent generations. Nevertheless, you can obtain projections under current law by accessing the online calculator provided by the Social Security Administration (SSA). The SSA says the average retired single worker received $14,000 a year in 2011; $23,000 for a couple.
• Figure out how much income you will need from your investments. Once you have figured what you will need and what you will receive, you can determine the amount needed from investments to pick up the slack. But understand that this income will have to sustain you through a hopefully lengthy retirement. As life expectancies continue to increase due to medical advances, the projected needs of investors increase, too. If you are retiring this year, you may need to plan for an additional 25 or 30 years of living—maybe more.
• Figure out how to invest. There are a wide variety of investment options at your disposal. Of course, you must balance the potential rewards against your tolerance for risk. Everyone’s situation is different, so develop a plan of action with the assistance of your investment advisers.

If you find that you are significantly short of meeting your goals, at least there is some comfort in knowing that you are not alone. Among workers who are older than 45, only 54% have managed to save $25,000 or more, despite several periods of robust growth in the equities markets.

In a pinch, you may consider scaling back, moving to a less expensive location and delaying retirement for a year or two. Doing so gives you longer to save, provides a longer time for savings to grow, reduces the time you will be living on a fixed income and increases your Social Security benefits.

Finally, know that the trail to retirement does not have to be a lonely one. Rely on professional advisers to show you the way.