I think there's a better question to ask instead of how "safe" is your retirement -- and that's how "fragile" are you, financially speaking, in the face of the most common retirement pitfalls? Can you pull out less than 4% of your nest egg and make ends meet? But nothing makes this strategy more perilous than terrible investment returns in the first five years of retirement. That's because the money you pull out for living expenses is being "sold" for cheap valuations, and it won't have any chance to grow during the following three decades. Are you ready for long-term care? None of this includes the other expenses that come with living your life before the need for long-term care. Officially, the trustees of the Social Security Administration estimate that full benefits can be provided until 2035, after which time only 77% of benefits can be paid. People more than a decade from retirement should make even more conservative estimates: Assume that you'll get only 50% of your "full" retirement benefit. If you want your retirement to be safe, you need to to the following three things: (1) plan on getting by withdrawing less than 4% of your nest egg if your portfolio takes a hit; (2) purchase long-term care insurance; and (3) if you're younger, assume that Social Security won't be as generous as it is today. Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.
Many of us work with two kinds of coworkers – those who say they can’t wait to retire and those who swear they love their jobs so much they plan to die at their desks. I get the first group. Who doesn’t want to retire to a life of leisure without alarm clocks, meetings, conference calls, and commuting in traffic?
The second group, however, I view with a somewhat skeptical eye. Sure, some of us have dream jobs that we can’t wait to dive into every day and we would be very happy working in them until we are simply unable to do so. But when it comes to working past “normal” retirement age (let’s call it 65 since that is when Medicare kicks in for American workers), how many of us are going to work that long because we truly want to, and how many of us are masking the reality that we might actually need to work well into retirement age due to financial reasons?
According to Gallup’s 2016 Economy and Personal Finance Poll, almost one-third (31%) of U.S. workers anticipate they will work beyond age 67. A slightly higher percentage (38%) expect to retire sometime between 62 and 67, with only 23% forecasting early retirement prior to age 62. Baby Boomers (workers born between 1946 and 1964) appear to be even more reluctant to retire at earlier ages. A separate Gallup study indicates that almost half of the Boomer workforce (49%) does not expect to retire until age 66 or older, with 10% suggesting they never expect to retire.
Know Your Numbers
Even if you are unsure as to which of these two camps you may find yourself, a good first step for all of us is to periodically run a retirement income projection to estimate how much of our pre-retirement income we could potentially replace at retirement time. The latest Retirement Confidence Survey conducted by the Employee Benefit Research Institute and Greenwald & Associates reports that only 41% of workers or their spouses have attempted to estimate how much savings they…