Refine Your Retirement Goals

May 1, 2023

Retirement is often viewed as a time when you can relax and enjoy the fruits of your labor. A successful retirement requires careful planning.

Here are some critical steps you should take.

The role of Social Security

It’s challenging to plan for retirement without understanding the role of Social Security.

Is your goal to retire early?  If so, will you be dependent on Social Security benefits?

You can’t access those benefits until you reach age 62, and filing for them at that age will reduce the benefits you would have received if you waited until you reached full retirement age ( age 67 for those born in 1960 or later.)  Delaying Social Security until age 70 will increase your benefits.

If you are concerned about the viability of Social Security, you’re not alone.  One survey found that most Americans are worried about whether Social Security will run out of funds in their lifetime.

While there are no guarantees, it seems unlikely that Congress won’t continue to fund Social Security because of the critical role those benefits play in the financial lives of Americans (who are voters!).

According to the Center on Budget and Policy Priorities, 22.5 million more adults and children would be impoverished without Social Security.

A majority of those age 65 and older receive most of their income from Social Security.  If they didn’t receive those benefits, 37.8 percent of those adults would have incomes below the official poverty line.

The elimination of Social Security would also terminate the life insurance and disability insurance protection it provides to millions of Americans.

While these facts comfort those concerned about the continued viability of Social Security, viewed in another context, they provide compelling reasons why planning for retirement is so critical.

The average Social Security retirement benefit in January 2022 was only $1614 monthly or about $19,370 yearly.

If you want to enjoy a comfortable lifestyle in retirement, you’ll need to supplement those benefits significantly.

Assess Your Current Situation

Before creating a roadmap for your retirement, it’s important to understand your current financial and personal situation. Start by taking a detailed inventory of your assets, including your investments, real estate holdings, and any other sources of income. Then list your debts and other liabilities.

Consider your age, health, job security, family commitments, and savings. Evaluate your lifestyle, hobbies, and interests to determine what you’ll need to support your quality of life in retirement.

How will you fund your retirement?

Many factors must be considered when calculating the savings you will require to fund your retirement.  They include:

● The age when you want to retire;
● Your lifestyle in retirement;
● Where you will live in retirement;
● Taxes
● Healthcare costs

Fidelity suggests this guideline:  Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.

According to AARP, retirees tend to underestimate these expenses in retirement:

● Healthcare
● Home maintenance
● Travel
● Transportation
● Utilities
● Fitness and Wellness
● Children and Grandchildren
● Taxes
● Charitable giving
● Financial professionals

Sound planning for retirement means realistically estimating all your expenses and factoring in inflation.

Investing for retirement

Investing for retirement is generally done in three categories:

1.  Investing in a retirement plan sponsored by your employer;

2.  Investing in an individual retirement account for those without access to an employer-sponsored account.  A traditional or Roth IRA is typically used, but you may have other options.

3.   Investing after-tax money in a brokerage account.

Once you select the account(s) where you will be investing for retirement, you’ll need to create a roadmap you can follow to reach your retirement goals.

The Securities and Exchange Commission, in a helpful guide, provides these suggestions:

● Start saving early

● Make a financial plan.

● Have a savings goal

● Reduce credit card or other high-interest debt.

● Understand the risk of investing.

● Understand the benefits of compounding.

● Understand the benefit of diversification.

● Understand the benefit of investing in index funds.

● Do your due diligence before retaining a financial advisor.

Revisit your plan regularly

Life is unpredictable.  Unexpected events like the death of a spouse, divorce, or an unexpected financial windfall can upend your financial plan.

Review and adjust your plan regularly, stay informed, and seek professional advice as needed to navigate the complexities of retirement planning.

At Sensible Portfolios, we help our clients with all aspects of retirement planning.  Our services include creating a retirement plan and managing investments for a low fee.