Retirement planning has undergone a radical change in the last decade. Times have changed and so has the way people are thinking about retirement.
Before 2008 many financial planners talked to their clients about buying a vineyard or opening a New England bed and breakfast in their golden years. After all, stocks would continue to gain in value and so would the equity in their home.
Then came the reality check of 2008. Now, it seems, the goal is to just have enough money to live the rest of your life above the poverty line.
Doubts about pensions and Social Security
In the past, many could rely on pension plans and Social Security benefits, but pension plans are increasingly rare and Social Security benefits should not be used as a sole source of retirement, financial planners now say.
Problem number one is Americans are living longer. Not really a problem except that if you stop working at age 65 and live to be 95, there's 30 years of living expenses you have to cover.
According to a recent Employee Benefit Research Institute study (EBRI), nearly 47 percent of early baby boomers, ages 56 to 62, are at risk of outliving their retirement savings. To make sure that doesn't happen requires a plan. A realistic plan.
A realistic plan
"To develop a sustainable strategy that meets your specific needs, some important considerations would be your age at retirement, life expectancy, living expenses and the rate of return you expect from your investments," said Dean Urbanski, Vice President, BMO Harris Financial Advisors, Inc.
A realistic retirement should include these steps:
- Reduce living expenses
- Develop a withdrawal strategy
- Carefully allocate your assets
- Choose a post-retirement career
- Improve your health
While most planners begin their strategy on the income side, it may be best to look first at the expense side and housing is one of the biggest expenses. If your home is nearly paid for, step up efforts to pay it off early.