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Life and Health

Keep Your Eye on the Prize

By June 16, 2017No Comments
Planning for retirement can sometimes feel like studying rocket science, but it doesn’t have to be so complicated. Throughout the last decade, economists and financial pundits have come up with “target numbers” to be used as way-points and objectives for upcoming retirees. At times, individuals have placed too much weight on these experts’ advice.

The financial landscape of America is changing constantly and retirement planning must evolve with it. Outdated advice and rigid financial guidelines will not prepare the millions of Baby Boomers who are nearing retirement age. Take a closer look at some of these antiquated suggestions retirement experts have been known to give and see why it no longer makes sense to aim for these “target numbers.”

Target Number – 70%

What does it mean? Individuals should plan on spending about 70% of what they currently make during their retirement years. For instance, a person who made a $100,000 salary during their working years should plan on spending $70,000 per year after retiring.

Why this is wrong: Life expectancy is on the rise, with the average person living past their 78th birthday. Retirees with pension plans don’t have much to worry about, but people with personally financed retirement funds, like 401(k)s and IRA accounts, run the risk of out-living their nest egg. Certainly retirement is a time of relaxation and enjoyment, so properly budgeting your finances is a must if you want to keep the party going well into your golden years. Do you have a medical condition that may require long-term care in the future? Or have your relatives lived exceptionally long lives? Take into account these and other relevant factors when determining your investment and post-retirement spending strategies.

Target Number – 4%

What does it mean? When considering the total amount a retiree has saved, individuals should spend 4% of that total each year during retirement, while keeping the remaining balance properly invested in stocks and bonds.

Why this is wrong: As the market rises and falls, one’s spending habits must do the same. Continuing to spend 4% while your portfolio is having a down year will quickly dry up your assets, while you might find yourself under-spending during times of high returns.

Target Number – 62

What does it mean? At the age of 62, individuals can begin to receive reduced Social Security benefits. The Census Bureau also reports that 62 is that average age of retirement in the U.S.

Why this is wrong: Reduced Social Security benefits may not supply the income necessary to retire on, with maximum available benefits coming at 70 years of age. Working a few extra years past 62 can also give you the income necessary to beef up your 401(k) plan or IRA.

Target Number – $1 Million

What does it mean? This is the target amount you should have saved before retiring.

Why this is wrong: Some economists are actually now saying that $1 million might not be enough to comfortably retire on. When Scottrade analysts where asked if $1 million were enough money for the average American family, more than 70% of them responded “no,” further explaining that $2 million – $3 million is now the target amount. Unfortunately, these numbers don’t agree with most Americans’ pocketbooks.

A recent study of individuals with self-managed retirement plans by the Employee Benefit Research Institute found that workers ages 55 to 64 were saving less than $70,000, much less than what Scottrade analysts feel is ideal.

Although these two numbers may not mesh, Americans always find a way to make do with what they have saved. Eliminating debt and avoiding unnecessary spending splurges is the best way to stretch your dollars while heading into retirement. Of course, keeping a close eye on your savings and maintaining a balanced portfolio always helps, too.