According to a recent survey by Goldman Sachs, many people out there don’t have confidence in their retirement savings. Only 25% of the population are at a point where they can retire with at least 70% of their pre-retirement income. An overwhelming majority are living in retirement with a lifestyle that is not what they hoped it would be.
For some people, this isn’t terrible news. If you’ve paid off your mortgage or gotten rid of other major expenses before retirement, you might be able to live on 60% of your pre-retirement income. However, most people need to be at 70% or higher to be secure in their lifestyle throughout retirement.
Why are so few people achieving this number? One explanation is that people are living longer, on average, so they need to make their money last longer. Your pot of money now needs to last thirty to thirty-five years instead of just fifteen or twenty. You can’t take out as much income when it must last longer. Studies show that, even though people are living longer, they aren’t working longer. The workforce still wants to call it quits in their early sixties.
The article where we found the Goldman Sachs survey gives some ideas for switching the percentages to 75% of people being completely secure in retirement. One of their suggestions was that people work for more years. That’s not a very appealing idea.
You don’t have to go from working full-time to full retirement. There are intermediate steps you can take. Maybe the answer for you is to stop working full-time and start working part-time as a transition to retirement. You can cut out the commute and switch to remote work or find a more relaxed job that won’t put as much pressure on you. Many people are taking advantage of this option right now.
The article also offered some real, decent solutions. One has to do with optimizing your Social Security benefits. Most people want to take Social Security immediately. Very few people want to delay taking Social Security. Some people are worried that Social Security will go bankrupt; the media loves to talk about that, but they’re just trying to scare people. Between that and the fact that no one knows how long they’re going to live, Social Security usually has a “get it while you can” mentality attached.
Of course, there are situations where you can optimize your social security by taking it early, but that’s not the best option for everyone. Before you start taking Social Security early, I recommend that you sit down with a financial planning firm that focuses 100% of its time and energy on retirement planning and ask them to run some different scenarios for you. That way you can clearly see how the numbers work out, and you will be better equipped to make a wise choice.
When I talk about running scenarios, I don’t mean finding some report about how to optimize your Social Security. Your Social Security doesn’t exist in a vacuum. Social Security is one asset in retirement, but you probably have retirement savings in a 401K, IRA, or Roth IRA after-tax account. Social Security is only one element of your retirement plan. You could look up how to get the most out of Social Security and find a list of steps to follow. However, when you sit down with a planner who lives and breathes retirement planning, they will run scenarios that connect your Social Security with everything else. That’s the key.
You also must consider how taxes will affect how you collect your Social Security. Many times, you can use a strategy that gets you a lot of Social Security, but in the process, you end up blowing through your other assets and paying way more in taxes. You might be better off getting less Social Security to get more from your retirement accounts and lose less in taxes. Advisors should be providing in depth planning when it comes to retirement, and there are people who have never had this kind of conversation with their advisors.
If you don’t have any retirement savings, and you’re completely reliant on Social Security, then of course you should maximize it. But for most people, you have other assets, especially as you’re getting close to retirement. Maybe, for you, optimizing Social Security means you shouldn’t take it right away. You don’t have to wait until 70. Sometimes it makes sense to wait, but not always. I recently helped someone realize he could get the most out of Social Security by waiting two years to take it. It was a huge benefit for him, and he didn’t have to wait until he was 70.
When you look at your retirement planning, make sure you are optimizing your Social Security. See how it coordinates with the rest of your planning instead of looking at it as something that exists in a vacuum. You can make your result greater than the sum of its parts if you make each part as good as it can be and then bring the whole thing together. Don’t forget to include taxes! Taxes are a subtraction of your income and can cause problems, especially if you’re not aware of how they work.
If any of this is new for you, and nobody has walked you through it before, you deserve to have better help. You need to talk to somebody who will take the time to help you figure everything out. You should be able to wake up every morning knowing that you have your bases covered and won’t run out of money. You should be able to focus on what makes you happy. If you feel like you’re not quite there, please give us a call. It’s free to call, and we can put together a free, personalized Retire RIGHT Report. RIGHT stands for Risk, Income, Growth, Healthcare, and Taxes, which are all components in your retirement plan. Reach out to us at 512-886-5850. We’ll get you an advisor who will help you put together your current baseline, so you know where you are and how you’re doing. That’s a free financial baseline. Depending on the situation, they may even put together some overlays to show you small adjustments you can make. We’re here to help you as you navigate planning for retirement.
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