A recent TIAA survey found that nearly two-thirds of retired Americans are “very satisfied” with the old-age lifestyle that they have been able to achieve, and nearly half of respondents believe that retirement has exceeded their overall expectations. What can pre-retirees do to help ensure a similarly positive retirement outcome? For young adults, the single best action that they can take in order to obtain a comfortable and financially secure retirement is to start setting money aside as soon as possible. Doing this will not only give them more time to amass a sizeable nest egg but also a longer time horizon for the assets that they invest their savings in to grow. For example, if a person decides to put his or her money to work in the stock market, an early start will provide more time to benefit from capital gains and dividends, as well as additional time for investments to recover from market corrections and other potential setbacks.
For older Americans who were not timely with their retirement savings, some partial help is available through the additional catch-up contributions that can be made to 401(k)s and IRAs if they are at least 50 years of age. Further, as people grow older and near the age of retirement, it is generally considered a good idea for them to start scaling back the proportion of their retirement portfolio that is invested in the stock market and to instead park the funds somewhere safer (less volatile), e.g. cash and fixed income. However, understanding how to both construct and regularly adjust a diversified, age-appropriate retirement portfolio is a mystery to many Americans. This likely explains why target-date funds (TDFs), the hybrid mutual funds that automatically adjust the asset mix of stocks, bonds and cash equivalents in its portfolio so that the holdings are more appropriate for a particular investor’s nearness to retirement, have become quite popular in recent years.
Another thing for people approaching retirement to consider is whether or not they should actually stop working at the traditional age of 65. Indeed, continuing to earn an income for a few more years can help some individuals shore up their savings and postpone when they begin collecting Social Security, thereby maximizing the benefits that they will receive. A delayed retirement may be unavoidable for people who procrastinated with their savings but many Americans in general are going to be unsure as to whether or not they will need to continue to work. Such issues can be addressed by consulting with a professional financial advisor who can help estimate potential old-age outlays and therefore determine if current savings and other sources of income will be sufficient. An advisor can also help develop a general spending plan that outlines how much and how often retirees can withdraw money from their savings so as to help ensure than the funds will last throughout the duration of retirement.
Sources: TIAAPost author: Charles Couch