Over the past decade we have seen several large brokerage firms promote the concept of “What is your Retirement Number?” Though each firm provides their own branding to this theory- in reality they are all very similar in nature. The focus is on getting an individual to start thinking about Retirement and working towards a goal of how to get there.
Marketing and advertising is all about getting people to think, talk, remember and correlate your brand to something.
Sometimes the ads resonate and sometimes they do not. In this case we have to applaud these large firms for leading people to think about their long term goals (which really is what retirement planning is all about) – with that said tying a number or dollar figure behind when you should retire may not the best way to set your financial goals.
Retirement planning should not just be about the value of the assets you accumulate. Talk to any Financial Advisor and see how many times clients or new potential clients asks them the questions: How to I compare to your other clients? Do I have enough to retire? Am I on track? It is human nature to want to compare yourself to others- the old cliché “Keeping up with the Jones” is never more apparent than in the Financial Planning world. The aforementioned questions are hard to answer. Someone who has millions of dollars in retirement accounts and investments may be worse off than the couple that has $500,00 in assets. How can that be?
It’s all about your lifestyle, your debt, your expenses and your health in the golden chapter of your life. Thus gauging how well you are prepared based solely on a number is the wrong approach. You need to factor in what your income will look like after you receive that gold watch and close the door on our working life.
Start by working backwards to determine what your guaranteed pillars of income will be- this means fully understanding how to maximize your social security benefits.
Many Financial Professionals advise that you wait as long as possible before turning on your benefits. Your reward for delaying is an 8% increase each year until age 70. Despite this, a high number of US workers who have reached 62–41 percent of men and 46 percent of women- apply for Social Security at 62. This results in a lifetime reduction of your Social Security benefit.
If you are fortunate enough to have a Pension make sure to review all possible options- especially if you are married. Work with a Professional Planner that can help you determine the most appropriate option. Sometimes there are creative ways to use the pension. For example, if your health is good you may want to take the single life option (which is the highest monthly payout) and then use the monthly difference to buy a guaranteed life insurance policy. This can provide additional flexibility upon death and some of the new policies contain Accelerated Benefits in the event of Home Health Care or Terminal illness.
Annuities can provide another source for guaranteed income. There are many different types:
Make sure to speak with an advisor who understands all aspects of annuities and one that is independent so your choices are not limited. Annuities are complex and there is no magic one that will do everything. The key is understanding how an annuity can fit into your Income Puzzle. In addition to planning for your guaranteed income sources it is also critical to know your expenses in the retirement years. Make sure to utilize an expense/budget worksheet that can help you get a handle on your fixed and variable expenses. Armed with your income and budget now you can tackle what an appropriate “Retirement Number” should be.