For boomers feeling behind on their retirement savings plan, make 2013 the time to get back on track and establish a prudent savings and spending plan.
According to the Pew Research Center, there are 75 million baby boomers in the United States and 10,000 of these boomers will enter retirement age every day for the next 19 years. In 2013, the oldest of the baby boomer generation will turn 67 and while many have already retired, others are still in the workforce and aren’t financially prepared to leave for good.
As boomers head closer to that last day of work, they should feel confident that their savings will cover their needs and wants. But this doesn’t happen without a great deal of planning and an eye toward the many potential pitfalls that wait in retirement.
In order to help boomers retiring in 2013 or soon after, Allianz Life’s vice president of consumer insights, Katie Libbe, suggests boomers consider the following checklist prior to their last day of work:
Tip No.1: Calculate your basic living expenses and sources of income. By your last day of work, it's no longer acceptable to have only a vague idea of your expenses in retirement. It's crucial that you zero in on your exact expenses as well as the sources of income you’ll use to cover those expenses. Ideally, these costs should be addressed by some type of guaranteed income source (pension, annuity, etc.). Once basic living expenses are taken care of, it’s much easier to plan for the fun parts of retirement.
Tip No.2: Determine how to make your employer-sponsored retirement plan (401(k) 403(b), etc.) last. Unlike previous generations, the majority of assets in boomers’ retirement accounts are not guaranteed in the form of a pension that pays out every month for the rest of your life. You are responsible for making that money last and need to determine a strategy to ensure it does just that. Many people allocate a portion of their assets to an annuity with some kind of guaranteed income stream that you can’t outlive.
Tip No.3: Get clarity on Social Security. People may receive 20-30% less in their benefits based on current Social Security Administration calculations if they start withdrawals before age 70. Make sure you have a strategy for taking your benefits that helps you meet your retirement income needs without sacrificing benefits unnecessarily.
Tip No.4: Address inflation and health care costs in retirement. According to the recent Retirement & Politics Survey from Allianz Life, inflation and health care costs are two of the greatest concerns for boomers. The average inflation rate since 1914 is 3.4% and the average rate during the 1970s was a staggering 8.1%. Health care costs, which are very important in our later years, are dramatically impacted by inflation. According to Kaiser Family Foundation and HRET Survey of Employer-Sponsored Health Benefits from 1999 to 2011 (Sept. 2011), while wages have increased 50%, health care premiums have increased 160% over the same time period. Without a plan to address these factors, you’re retirement income might run out faster than you think.
Tip No.5: Streamline your retirement accounts. If possible, you should try to consolidate any retirement accounts, such as IRAs, to simplify your record keeping and mitigate the impact of taxes and Required Minimum Withdrawals (RMDs). How you take your money out of your retirement accounts can be just as important as how you got the money into the accounts.
Tip No.6: Make sure your family is protected. To gain true piece of mind and ensure your family is protected in case retirement doesn’t last as long as you’d planned, it’s a good idea to establish a will and/or living will, making health-care directives and addressing power of attorney. Tackling these issues ahead of time can help you be worry-free as you start the next chapter.