Overcoming roadblocks to retirement
In your life, you will want to take many journeys. Some are physical – perhaps you’ll finally visit the French Riviera or the Caribbean. Others involve personal growth – one day, you’ll finally become fluent in that foreign language you’ve been studying. But of all the destinations you can identify, few will be as important as retirement – specifically, a comfortable retirement. And that’s why it’s so important to consider the “roadblocks” you might encounter on your road to the retirement lifestyle you’ve envisioned.
Here are five of the most common obstacles:
Insufficient investments — Very few of us have ever reported investing “too much” for their retirement. But a great many people regret that they saved and invested too little. Don’t make that mistake. Contribute as much as you can afford to your 401(k) or other employer-sponsored retirement plan, and increase your contributions whenever your salary goes up. Even if you do participate in your retirement plan at work, you may also still be eligible to fund an IRA, so take advantage of that opportunity, too. And always look for other ways to cut expenses and direct this “found” money toward your retirement.
Underestimating your longevity — You can’t predict how long you’ll live, but you can make some reasonable guesses – and you might be surprised at your prospects. According to the Social Security Administration, men reaching age 65 today can expect to live, on average, until age 84.3, while women turning age 65 today can anticipate living, on average, until age 86.6. That’s a lot of years — and you’ll need to plan for them when you create long-term saving, investing and spending strategies.
Not establishing a suitable withdrawal rate — Once you are retired, you will likely need to start withdrawing money from your 401(k), IRA and other retirement accounts. It’s essential that you don’t withdraw too much each year – obviously, you don’t want to run the risk of outliving your resources. That’s why you need to establish an annual withdrawal rate that’s appropriate for your situation, incorporating variables such as your age, the value of your retirement accounts, your estimated lifestyle expenses, and so on. Calculating such a withdrawal rate can be challenging, so you may want to consult with a professional financial advisor.
Taking Social Security at the wrong time — You can start taking Social Security as early as age 62, but your checks will be bigger if you wait until your full retirement age, which will probably be 66 or 67, or when your payments “max out” at 70. You might not be able to afford to wait until then, but by postponing the date you begin taking withdrawals, you could help yourself considerably.
Ignoring inflation — It’s been low in recent years, but inflation hasn’t disappeared, and it could rise at exactly the wrong time — when you’re retired. That’s why you’ll want your portfolio to include some investments with the potential to outpace inflation, even during your retirement years.
By being aware of these roadblocks, and taking steps to overcome them, you can help smooth your journey toward retirement — and once you get there, you may enjoy it more.
This article was written by Edward Jones for use by your local Edward Jones Financial Adviser. Douglas J. Drost CFP Financial Adviser for Edward Jones, 2262 Reno Highway.