Today’s retirees have different lifestyles than those of retirees just a generation ago, and their expectations for retirement are greater as well. Most are fitter and more active than prior generations of seniors. They’re also much more likely to include work on the itinerary for their golden years.
Even prior to the current recession, 80% of baby boomers in a 2002 AARP survey said they planned to mix work with their R&R after retirement. Money usually isn’t the key motivator; retirees are instead choosing to pursue work that coincides with their interests and furthers their opportunities for social contact.
Of course, much has changed since 2002, and the financial fallout of the worst recession since the Great Depression devastated many boomers’ hopes for their retirement years. While a number of retirees are staying the course, some have been required to change gears a bit.
Aging Americans used to rely on company pensions, Social Security income and the ability to retire comfortably at 55 years old, but that’s just not the case anymore. Those without solid investment income may be sacrificing their dreams for retirement in order to pay health care costs and keep up the mortgage payments in a tough economy.
All is not lost. Rather than throwing in the towel and scrapping their dreams, many smart Americans are heading back to the drawing board to refresh their plans — with the assistance of financial professionals who can support them with realistic strategies.
Take a second look
Clients with dreams of a second home or a fancy yacht may need some help taking a second look at priorities to create a revised retirement plan that’s both satisfying and realistic. Instead of shelling out for a top-of-the-line motor home, perhaps renting an RV as needed could achieve the same objective and fit within a smaller budget. Financial restraints may rule out the purchase of a summer home but still leave room for annual vacations.
The goal isn’t to cut every corner. It’s to make an honest assessment and allocate funds to the things that are most important and will support the most satisfying lifestyle.
It’s time for retirement advisors to take a more holistic approach to financial planning by conducting a more thorough, quantitative analysis of financial situations. Only then can people identify a lifestyle that they can both afford and really enjoy.
Use the retirement tool chest
As a generation of 401(k) contributors approaches retirement age, the No. 1 question financial planners hear is, “How can I convert my 401(k) into monthly income?” That answer varies, of course, depending on the client’s age, asset mix and financial needs. And it’s important to look at all the client’s assets in concert, because that’s the only way to decide how, when and how much to tap each resource. A complete financial picture involves a variety of assets and how they can work with one another.
- Social Security: Monthly payments are guaranteed to keep pace with inflation. Although Americans are eligible at 62, the longer they wait to enroll, the higher the monthly payments they’ll receive.
- Stocks and mutual funds: The stock market still offers opportunities for investors, and it’s the first place to turn for aggressive growth to keep up with inflation.
- Bonds: While they don’t provide the heart-stopping payouts that some stocks have offered in the past, bonds are great tools for fairly predictable streams of income and limited loss potential.
- Savings accounts: These are great parking places for annual living expenses — but not much more, since interest rates are low.
- IRAs and 401(k)s: These accounts are untaxed until accountholders begin making withdrawals. Failure to make annual withdrawals after the age of 70½ triggers stiff tax penalties.
- Roth IRAs: These retirement accounts involve tax pre-payment, so qualified withdrawals after the age of 59½ are completely tax-free.
- Pensions: Only a select few Americans still have pension plans, but some smart planners create their own by purchasing annuities with their savings.
- Mortgage pre-payment: Those who own their homes outright give themselves the gift of much lower monthly expenses — something that offers much greater flexibility in allocating retirement funds.
- Health insurance: Controlling costs and avoiding disaster both play a huge role in a successful retirement plan, and both are great reasons to ensure retirees have the proper health and long-term care insurance.
Don’t overlook life insurance