So you’re in your 50s, here are 3 questions on MONEY crucial to success in your 60s
You’ve somehow survived the wild times of the 70s and are now trying to cope with the millennial driven 2000s. You’ve worked hard, contributed to our world, and are getting closer to when you can finally enjoy your life – Retirement! This word is likely brought up once a day between you and your peers, whether it is whispered at work or screamed loudly at your friend’s retirement party (who we are all secretly jealous of as we start to visualize when our own retirement will be). Don’t fear, your retirement day can be a reality but only by taking the same steps your friend took. As someone who helps people transition into this phase everyday, I’ve decided to share 3 pivotal questions I use with clients in your position.
How Much will it take for your Family to Live in Retirement?
I listed this question first because nothing else can be planned for until a person knows a good estimation of how much $$ it takes to live their lifestyle. A comparison we use is we have clients who wants to take their family to Paris every year while we have others who want to retire on their Lazyboy to only get up to eat (which can also be done from the chair for our creative clients). Each lifestyle will take a drastically different amount of retirement money for each person to achieve their goals.
Now most of us are somewhere right in the middle of those extremes. The next obvious thought is, well how do we determine what it will take for us to live the lifestyle we want? The only way you can determine your own personal number is to assess what it takes to live your lifestyle now. Then think about any financial changes (up or down) in your retirement years such as not having a mortgage payment anymore, no more assistance to your children, health care expenses, travel more, travel less, etc. It is a “simple” math problem at that point to add or take away from your current lifestyle to determine your first retirement income need.
The beautiful and frustrating thing about this process is that your number will change as you near retirement because news flash LIFE CHANGES. This is why we call it retirement planning and the process is everchanging with our lives. Once you have an estimation, you are ready for the next step of determining how what you’ve currently saved is going to get you there.
Do you have enough $$ saved to meet your goals?
At this point we have weeded out the people who aren’t actually in their 50s, who think retirement is but a distant joke several years from them. Now the question for you becomes will what you’ve saved (401ks, IRAs, brokerage accounts, savings account, social security, pension etc) be enough to meet your goals? Just as important to how much money you’ve saved is making sure the investments inside these accounts is aligned with your risk tolerance/goals.
This is commonly the part of the conversation where clients look you directly in the eyes to admit they have no idea what investments they own (similarly to me looking at car mechanic when they ask me what I think is wrong with my car). It is ok not to know and is honestly why we have a job in the first place. If you aren’t a do-it-yourselfer with this subject then seeking a professional to help you plan and structure your investments may absolutely make sense.
So, you’ve got your investments heading in the right direction but do you have enough to meet your goals? We like to help clients visualize their money saved separated into different income buckets. For example, if you have a pension or social security, you should have a very good estimation of what to expect from those buckets (estimate your Social Security online (https://www.ssa.gov/myaccount/). So, I break down those buckets into known income (pension and social security streams) and investment income. The important part for you to determine is how much a year you can take from your investment bucket to maintain the lifestyle you determined above. Now this is different for each person based on their goals, how much is saved, and time horizon for spending the money. We know its more complicated than this but at its simplest form it can be a math problem (for those who hate math you can skip to the next question).
Retirement Need – Known Income – Investment Income = hopefully 0 in an ideal case
When Can You Retire?
You’ve answered how much it will take a year for your retirement lifestyle and have looked at the money you have saved to get you there. The last vital question many of you want to know is when the heck can you clock in one last time? Just like all these questions, this answer is specific to each person. We have some clients who have been fortunate enough to retire in their early 50s with a pension or accumulated savings. We’ve also had some who work into their 70s to have enough saved to retire comfortably. I’ve included some important time periods to keep in mind for you to help determine your magic number. Age 59 ½ is when you are able to access your retirement investments (401k, IRA, 403B) without a 10% early withdrawal penalty. Age 62 is when you are first eligible to take Social Security payments at a reduced rate. Your full retirement age will be a higher figure determined by your birth year that can be investigated by the website above. Once again, with each client it depends on the ideal time for them to take Social Security given their exact situation. Each of those little factors will determine when you will have access to your money and hence when is the right time for you to call it quits!
You may find yourself feeling that there isn’t a clear cut answer to any of these questions! The truth of the matter is that we are all different, our lives are different, and we will retire different. There simply can’t be a cookie cutter approach because nobody’s situation is the same. Each major thing that has happened in all our lives has affected our money and therefore has changed our retirement planning. I hope this article inspires you to keep investigating the right plan for your family and to seek professional guidance to help get you there if needed.
“By failing to prepare, you are preparing to fail.” – Benjamin Franklin
If you're looking for a financial advisor to help with your retirement plan, view our Home Page to see how our firm helps our clients. As a Certified Financial Planner™, my goal is individualize each family's retirement plan to pair their investments with their retirement goals. Feel free to email Patrick Portman at pportman@retirewithpwm.com or call 502-331-8370 to see how our firm can help your financial future!