The Key to Not Freaking Out About Retirement

Guess what? The rich are not that different from the rest of us.  Turns out, like most folks, their top concern about retirement is whether they’ll be able to maintain their standard of living, according to a recent study by LIMRA, a marketing and educational organization for life insurance professionals.

The study looked at individuals with $500,000 to more than $3.5 million in assets. Market volatility, inflation, and having to pay for more years of retirement due to longevity are among the things they worry most about.  And, while they are more confident than those with substantially less assets, 70% rank being able to afford the same lifestyle they enjoyed prior to retirement as their top goal.

Rose-Colored Glasses

Some of them could be unhappily surprised.  According to Jafor Iqbal, assistant vice president of LIMRA’s Secure Retirement Institute and the author of the study, in order to maintain their lifestyle, a number of those surveyed would have to annually withdraw 15% from their retirement portfolios- a rate he calls “very unsustainable.”  He admits, “Some may be over-confident.” In fact, multiple studies done by financial professionals and organizations over the past 20 years suggest using a withdrawal rate of no more than 4-5% in order to not run out of  money over a 25-year retirement.

So what’s the solution?

Get A Plan

Yes, even if you have seemingly gobs of money, in Iqbal’s words, you still need to “be very prudent” about both how it is invested and how much you are taking out for living expenses each year.  That’s where working with an experienced financial professional- or a team of them- pays off.

It’s not simply about having the proper mix of investments.  You’ve also got to decide what types of accounts make sense- should you overweight bonds in your 401(k)?  What about a Roth IRA?  Where do small cap or international stocks fit in- if at all?  At what age should you start Social Security? What about coming up with an estimate of what your retirement budget will be- including medical expenses?  From which accounts should you take withdrawals?  How do you minimize your taxes? What expenses will you cut back on when the inevitable market decline occurs?

Do you wish to leave assets to your kids or grandkids?  How does this affect the size of the withdrawals you take?  Do you still need life insurance?  What happens to your stuff when you die?  At the very least, most people should have a will.  If you’ve got a complicated family (welcome to the 21st century), one or more trusts might be called for.

“Retirement planning is very critical,” says Iqbal. “It can be very complex.”  It can also be very emotional.   How will you spend your time?  He points out that if you’re married, “both spouses’ needs, aspirations and goals need to be addressed.”  Don’t expect a so-called robo-advisor to be able to incorporate the myriad aspects involved.  This process takes a human being- someone who will bring up issues you might not have thought of, with whom you can discuss ideas and worries and who is there to help you make adjustments when life throws you a curve- or the lottery.

The Pay-Off

Regardless how much you’ve managed to save for retirement or how complicated your personal life is, just knowing where you stand, how much income you can realistically expect and that all of your other concerns are covered, takes the weight of uncertainty off your shoulders.   Many people avoid getting help with retirement planning because they think it’s going to be complicated, time-consuming and expensive.  But if you’ve got fewer assets, it should be considerably less on all counts.

Even the affluent avoid it!  Only half of those surveyed by LIMRA had worked with a professional to develop a formal retirement plan.  But those who went through the process reported feeling significantly more prepared.  Fifty-four percent described themselves a “very confident” that they will be able to afford the lifestyle they want in retirement.  Thirty percent said they feel “extremely well prepared” because they understand how the assets they have will be able to create income, how much they can realistically expect to withdraw and how long their money will last.

[[[[INSERT GRAPHIC ]]]]]

If you’re in your 40s or 50s, a retirement plan will show you whether you’re on track.  If you’re not, you and your financial advisor can come up with a plan to get you there. Even after retiring, your plan is your touch point:  Can you afford to take the family on a cruise or should you opt for a one-week rental of a beach house instead?  How does replacing the roof on your home impact your spending?  Can you help your granddaughter with college and still afford the assisted living facility you’re considering?

If you were planning to drive the family from New York City to L.A. in 4 days, you’d spend hours figuring out: #1) Is this feasible?  #2) What’s the best way to get there?

Shouldn’t the last 30 years of your life be mapped out with equal (or more) care?