With a long weekend approaching it’s easy to forget about work. The ultimate vacation is retirement but with the day-to-day grind we tend to forget what we’re working for. When the roof has a leak or the car needs a big fix it’s understandable why we might dip into our retirement savings. Retirement is so far away, we have time to save for it, don’t we?
It’s that kind of thinking that leads to our topic today: retirement shortfall. Read the article below featured in this Mays issue of Hespeler Village Magazine and find out how you can avoid retirement shortfall:
Most older workers who are nearing retirement age have saved less than $250,000, which means they have some serious ground to cover.
What is retirement shortfall?
“Retirement shortfall risk is the potential that when someone retires, they will not have enough assets or income needed for what could be decades of retirements. Shortfall risk can be at the institutional level, where government and company pension plans need to have enough money to pay promised benefits, and for individuals whose retirement incomes may be coming out of their investments” (Pocket Sense).
Unfortunately this means that most Baby Boomers are at risk of falling short once they stop working. According to The Motley Fool, only one-third of Boomers with retirement savings have accumulated at least $250,000. This means that most retirees will have a shortfall of income of between $3,864 and $12,072 per year (Insured Retirement Institute).
If your savings aren’t where they should be and you don’t have much time left, now is the time to start making changes and taking steps to compensate. Otherwise, you’ll run the risk of struggling financially in retirement.
Perhaps it is your intention to work longer. I totally get that. But what happens if, physically, you can’t work longer, or you are laid off? What impact would that have on your retirement plan?
Perhaps you’re not sure how much money you will need in retirement. We hear that a lot. In fact, it’s one of the biggest reasons people give for not starting. They don’t know where to begin. I argue that it’s better to start with something, and figure out the details along the way. A start, even a slow one, is better than no start at all.
Options When Facing a Retirement Shortfall
There are essentially four options when faced with a retirement shortfall:
- Decrease your lifestyle goals. If you had hopes of having a lifestyle of $4k per month, by reducing your monthly cash flow to, say $3k, your money will last longer.
- Retire later. This may or may not be an option depending on health and the job market.
- Take more risk with your portfolio. Become more aggressive with asset allocation, or perhaps employ more aggressive strategies to achieve your goals. DANGER, WILL ROBINSON. This should only be done after considering all the options and having a very frank conversation with your advisor about the risks.
- Put more money in. Perhaps take a part-time job in retirement, or alternatively by paring back your expenses now and finding more funds to invest. This may mean budgeting. I know a lot of people consider the word budget a swear word, but it may be the right decision for you.
While it is never too late to do something, I argue there is no time like the present. Take accountability for your retirement and do something about it. Take control and take action.
David Reeve is President and Owner of Davlyn Financial, a local financial planning firm in Hespeler. He can be reached at 519-651-1246 or firstname.lastname@example.org.