Planning for Retirement Program Recap

One of the biggest financial considerations for anyone is retirement.  When do I retire? How much money will I need?  Where should I put my money?  These are some common questions as it relates to retirement, but you don’t need to be a financial expert to start planning.  Britany Enelow, Financial Advisor from the Credit Union of New Jersey shared the following information to help you on the pathway to retirement.

First and foremost, there are some broad considerations regarding retirement you should think about.  What does retirement look like for you?  When are you going to start retirement and how long will it last?  What sources of income do you need in order to live comfortably in retirement?  By having a clearer picture of what you want your retirement to be, including where you are going to live, you will have a better understanding of how you should start preparing financially for retirement.

Once you have a picture of our retirement, you need to start building a retirement strategy.  When determining how you are going to prepare for retirement, you should plan to have enough funds to last 20-30 years while in retirement.  The assets in your portfolio should be spread out between Growth, Access, and Predicable Income:

  • Growth – assets that continue to grow while in retirement, such as stocks.  Goal is ensure that your money outpaces inflation.
  • Access – liquid money that you can use immediately for emergencies or unexpected expenses, such as a savings account
  • Predictable Income – used to cover necessary expenses, regardless of how the market is doing, such as Social Security, Pension, Annuity, part-time employment

According to the Bureau of Labor Statistics, the average annual expenditures for persons aged 65 and older are:

  • Housing and utilities – 34%
  • Transportation – 15%
  • Health Care – 15%
  • Food – 13%
  • Entertainment – 5%
  • Other – 18%

By preparing a budget using the assets in your portfolio, as well as your current expenditures, you can more definitely determine how much money you would need in retirement to survive.  This includes determining the sources of income that you will rely on to meet those expenditures.  Possible sources of income include Social Security, 401k, IRA, investments, pensions, or deferred compensation.  Once you identify all of your income sources, organize them into Predictable and Variable incomes to better determine how much money you will have easily accessible to pay for your necessary expenses as well as plan for non-essential costs that add to your quality of life.  Use the 4-Box Strategy, shown below, to better visual your incomes and expenses and determine what works best for you.

Once you have done all the planning, its time to start building your Nest Egg.  As you approach retirement, your asset allocation should become more conservative, relying less on stocks and high-risk ventures and more one safer options, such as bonds.  In an ideal world, you want your Nest Egg to be 15x your annual income.  The reason for such a high number is to ensure that your annual growth from the investment, about 5%, will equal 75% of your pre-retirement salary, which should be enough to pay for your necessary expenses.  For example, for someone making $75,000 a year, their Nest Egg should be around $1.125 million.  5% of that Nest Egg equals $56,250, which is equal to 75% of their $75,000 annual income.  This will help insure that you will not run out of money in retirement and allow you to have some monetary legacy to pass on after your death.

Unfortunately, retirement planning and funding are not without risk.  With modern medicine, people are living longer which means that you might outlive your retirement funding.  Therefore, it is critical to plan for at least 20 years of retirement when determining how much money you will need.  Another risk is inflation, which means that the money you have today will not be worth the same amount in the future.  Therefore, it is important to have some of your money in growth-focused assets to ensure that your money keeps up or outpaces inflation.  Healthcare expenses are rising quickly and can easily consume a majority, if not all of your retirement spending.  For example, the median yearly cost for a home health aid is about $50,000; it is higher if you live in NJ.  Lastly, withdrawing money too soon or too often can have a devastating impact on your future finances, which you may never be able to recover from.

For more information on retirement planning or investing, please contact Britany Enelow at benelow@cunj.org or 609-538-4061 ext. 2056.  For a copy of the handout, please visit https://www.njstatelib.org/wp-content/uploads/2019/11/Planning-for-Retirement.pdf.

 

About Andrew Dauphinee

Education and learning are passions of mine. Lifelong learning is a core part of who I am and I strive to pass that desire for information on to everyone I meet. As the Instruction and Outreach Librarian, it is my goal to provide quality, informative, and relevant programming to meet the diverse needs of our patrons. Please contact me regarding programming at adauphinee@njstatelib.org.