Making Sure Your Portfolio Is Ready To Provide You with a Comfortable Retirement
If you are approaching retirement age, you are not alone.
Each day, more than 10,000 baby boomers (those born between 1946 and 1964) will turn 65 years old. About 60 percent of those are retiring. This is a pattern that will continue for the next 19 years and the U.S. Census Bureau estimates boomers will make up 20 percent of the national population by 2030.
The boomers who came to age in the 1960s are now growing into old age in their 60s, and they are facing a vastly different retirement landscape than did previous generations.
- In 1980, about 39 percent of private-sector workers had pensions which guaranteed them a steady payout during their retirement years. Today, that figure is down considerably, to 15 percent.
- More people than ever are relying on stocks as part of their retirement plans, with 42 percent incorporating 401(k)s. The past decade has been a rough one for stocks; the S&P 500 Index has posted total returns of just four percent since the beginning of 2000.
- The crash of the housing market has had a severe impact on boomers. Almost 11 million people owe more on their mortgages than their homes are worth, or 22 percent of homeowners. Many of those are baby boomers who had banked on their homes as their retirement funds.
- Roughly half – 51 percent – of boomer households headed by those between the ages of 55 and 64 are looking at retiring with lower living standards, according to researchers at
. Boston College
- The AARP says that far too many boomers have underestimated or even ignored the dour outlook for their finances. The biggest mistake boomers have made is failing to save for retirement. The personal savings rate – the amount of disposable income unspent – averaged almost 10 percent in the 1970s and ‘80s, but by late 2007 that rate had sunk to negative one-percent. People in their 50s and 60s who have had a 401(k) for at least six years had an average balance of less than $150,000, according to the Employee Benefit Research Institute.
- According to a Congressional Budget Office report, the average worker who retired at age 65 in 2008 will receive a benefit which comes to about 40 percent of his or her preretirement earnings, and pensions or employer-based retirement plans usually are not enough to make up the difference.
So, if you are thinking about retirement, you should monitor your retirement portfolio and rebalance as you feel is needed. You should also calculate to determine if your portfolio is delivering the kinds of returns you will need for your ideal retirement. Below are some steps you can take to ensure that.
Determine What Your Income Should Be
This should be your first step in figuring out what your retirement income should be, excluding your own savings. You can contact the Social Security Administration, by calling (800) 772-1213 or logging onto www.ssa.gov. Ask for a Personal Earnings and Benefit Estimate Statement, which will tell you how much you can expect each month from Social Security when you retire. When you receive your form, examine it closely – several things can have a negative impact on your benefits. These can include using a name other than the one on your Social Security card or entering an incorrect Social Security number.
Understand the factors which can affect your expected future payments. Defined-benefit plans, like pensions, are often linked to Social Security payments, which means a larger Social Security check could mean a smaller pension check. You should also be persistent about seeking information. Some plans will give you regular updates about your benefits as you get closer to retirement; you should stay in close contact with your H.R. department to make sure you are getting what you need to make informed decisions. If you feel you are not getting the information you need, you can call the Employee Benefits Security Administration at (800) 998-7542 to find the nearest Department of Labor office. If you think you might have some pension money coming to you from other sources, such as brief periods of employment or from having worked at companies which have merged or gone out of business, you can check the website of the Pension Benefit Guaranty Corporation, at http://search.pbgc.gov/mp/mp.aspx.
Figure Out How Much More Money You Will Need For Retirement
Determine the amount of income you feel you will need to retire comfortably and compare that amount with your expected income from Social Security and pension. Then, figure out if your current investments will cover the difference between those two numbers. Keep in mind that you should not need the entire amount of your retirement savings as soon as you stop working – your investments should continue to grow during your retirement years.
Big company stocks typically offer a rate of return of about 11 percent per year. People considering retirement within the next 10 years should expect a rate of return of about half that. On average, intermediate-term bonds offer a 5 percent return rate, and a conservative 2 percent return is good for cash.
The Bottom Line
Here are some common-sense suggestions to follow if your current portfolio is not producing the kind of return you think you will require for your retirement.
- Reconsider the kind of lifestyle you will need to make your retirement years comfortable ones. There is a difference between “needs” and “wants.”
- It may be hard to even think about, but consider working part-time or even delaying your retirement. People who have reached full retirement age can get full Social Security benefits, no matter how much they earn. Even if you begin receiving Social Security before you have reached full retirement age, you can earn up to a certain amount (you can learn more by checking out this link: http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/236/~/how-work-affects-social-security-retirement-payments.)
- If your retirement is still a few years down the road, you can consider becoming a more aggressive investor. For example, you can trade some bond funds for more conservative equity funds.
- What you save now, you can spend later. If you can curtail spending now (by doing simple things like eating out less and putting the money you saved in your retirement account) you will have more to spend when you are not working – when you will really need it.
- Stay on top of your retirement – check in on a regular basis to see where you are, and work with your investment professional to get you to where you want to be.
Of course, if you have any questions about your retirement outlook, check with your WealthTrust Arizona Financial Advisor.
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