Twenty and thirty years ago, the picture of retirement most people had in mind was one where there was a finality to your job, you’d move to where the weather was warm (if you weren’t already there), and you’d spend the rest of your days doing some travel, maybe a bit of volunteering, playing some golf and visiting with family and friends. Between expanding life spans, turbulent market conditions, concerns about Social Security, corporate pension plans and job security, the retirement picture of the past is not necessarily the retirement picture of the future.

Average life-spans have risen substantially. You could possibly expect to live well into your 80s and even 90s. This means depending upon when you retire, you could actually have more than a third of your life ahead of you in retirement that you’ll need to fund. For some, this many years in retirement is actually daunting. Questions arise as to not only how they will pay for it, but what will they do with themselves all those years and, possibly, if they should put off their intended age of retirement all together.

To work or not to work

Because of the extended number of years in retirement, some people have chosen to continue to work throughout retirement — whether it’s because of a desire to do so in order to remain active or a need. Taking this into consideration will greatly affect how much you need to plan to save potentially as it could greatly supplement retirement savings and Social Security benefits. If you are in a profession or job that would allow for a partial retirement, continuing to work at your own pace may be easy; however, for someone who for instance is a police officer, there is no such thing as partial retirement and continuing to work would mean finding something else completely different to do. A few factors you need think about if you are working — even if it’s part-time — is that it may mean you won’t have the flexibility to do the sort of travel you were hoping for or have the time to spend with friends and family. As you near retirement, you also will need to take into consideration what your general health is like and if your health might affect the type of job you can do throughout retirement.

How to pay for it

If there’s nothing else the turbulent markets of the past few years have taught us, it’s that you can never save too much because you can’t solely rely upon investment returns. This means possibly making more sacrifices, socking away any large sums of money like a bonus or inheritance when the opportunity arises, and keeping your debt down — generally being smart with your current money decisions to secure your money in the future. You need to ensure that any money you have is diversified not only across the various types of accounts you have, but within the types of asset classes. Unless you have a true understanding of the markets, a financial planner is best suited to help you with allocation and diversification. Also, if you determine that Social Security is going to make a substantial portion of your retirement funding, you’ll also want to verify what your full-retirement age is for Social Security purposes. Knowing this can affect when you decide to actually start collecting and in turn when and if you’re going to stop working.

Obstacles and challenges

Finally, and possibly most importantly, be prepared for the obstacles and challenges life puts before you. Saving for your retirement is not the only financial event you need to plan for. Some of this preparedness doesn’t necessarily entail you financially preparing, but it does require preparation, which without could have a financial impact on you. For instance, have a conversation sooner rather than later with aging parents about their finances and long-term care plans should services be needed. Talk to your kids about funding for their college education. Make them understand what you’re able to cover and what they should expect to cover. Possibly being sandwiched in between the financial problems of your aging parents and your children could have financial implications without these conversations ahead of time.

What you can do now

It’s never too early to start!

  • Run the numbers: Work with a financial planner to help you project how much money you’ll need to live to your current standards. From there, you can work with the planner to adjust the numbers depending upon what your retirement goals are. The planner will take into consideration factors such as your current age, your current income, expected income, how much you already have saved and your expected age of retirement.
  • Create a savings budget: Once the retirement savings number has been projected, you can start to create your savings budget, so you know what you need to put towards savings in order to reach that number. This budget should also include other areas of savings like for a child’s education, funding insurance plans like long-term care or life insurance and having an emergency fund.
  • Identify sacrifices: No one ever said hitting your retirement savings goal was easy. You may have to identify sacrifices, both big and small, that you need to make now in order to ensure a secure financial future. 
  • Be flexible: Allow for flexibility in your plans, your budget and your savings. You may go into retirement planning with one picture of your future, but then find after ten years that you no longer have the same vision.

Ensuring that you are diligent and thoughtful about your retirement planning will help to coordinate the moving parts and give you choices as to what your retirement picture looks like.

FPA member Scott M. Kahan, CFP®, is president and founder of Financial Asset Management Corporation in New York City.

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