How Can I Start Saving for Retirement?

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

Building a retirement savings plan is a lot like building a home. You count on your house to provide shelter and to weather the occasional storm. It requires high-quality materials if it’s going to be built to last. Your retirement savings plan is the same. Your retirement savings plan starts with personal diligence. These financial building blocks will help you get started on the rest.

• Household Budget: Do you know how much to save for retirement? The Employee Benefit Research Institute’s 2013 Retirement Confidence Survey reported 33% of households think they need to save 20% or less of their income; 20% set their target between 20-29%, and 23% planned to save 30% or more of their income. Nearly one-fourth of respondents said they didn’t know how much to save. What do you budget for long-term retirement savings? Chances are you’ll face trade-offs between the everyday cost of living, paying down debt and saving for your child’s college education. Commit to a set percentage or amount on a regular basis, and adhere to your plan.

• Employer-Sponsored Plans: The IRS has defined the 401(k) contribution limit as $17,500 for 2013. Read the program requirements for your company’s 401(k) plan carefully. How much of your salary are you allowed to contribute, and what is the match – if any – offered by your employer?  Ask questions about the vesting schedule, which defines how long you must work for the company in order to keep the full matching contribution from your employer. As concerns about the adequacy of Americans’ retirement savings continue to grow, many employers are implementing auto enrollment and automatic escalations of the percentage that plan participants are saving in their employer sponsored retirement plans.

Don’t forget to give the investment options offered by your plan a thoughtful review. Do they offer both aggressive and conservative options? Are there funds that fit your investing goals? Consider asking your plan sponsor to expand the number of options available.

• Individual Retirement Accounts (IRAs): In addition to building your nest egg, IRAs offer tax advantaged savings for retirement. Your tax advisor can recommend the best form of IRA for your situation; choices range from traditional IRAs to Roth IRAs, SEP IRAs (for self-employed individuals or small businesses) and SIMPLE IRAs (Savings Incentive Match Plan for Employees). In 2013, the IRS defined the IRA contribution limit as $5,500.

• Rollovers, Transfers and Conversions: Did you leave a retirement account with a former employer? “Out of sight, out of mind” applies to retirement accounts too. If your funds aren’t in an account that you can actively manage or contribute towards, you may be missing out on key investing opportunities. Do you have the IRA that is the most beneficial for your tax situation? Consult with your tax advisor to ensure you’re contributing to the accounts that are the best fit for your financial situation.

• Catch-Up Contributions: Individuals aged 50 and older can make additional contributions to their 401(k) or IRA to offset a late start at retirement savings. In 2013, the IRS allows for an additional contribution of $5,500 to 401(k)s and $1,000-$2,500 additional contributions to IRAs depending on the type of IRA and your level of income (phase outs may apply).

Working with a trusted financial professional may help you to maximize your choices. Together, you may find the right building blocks for your retirement future.

Sources:

Department of Labor, “Top 10 Ways to Prepare for Retirement”.

Employee Benefit Research Institute; 2013 Retirement Confidence Survey, 2013 RCS FACT SHEET #3  and March 2013 Issue Brief.

IRS.gov

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

When Should I Start Saving for Retirement? #money #retirement #saving #life #Merry Christmas

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

Knowledge is power when saving for retirement. Many experts simply advise, “start saving now,” and “save as much as possible.” Yet, fewer than half of all Americans have taken the time to develop an estimate for retirement savings. Which half are you in?

Saving for retirement early is key, but understanding why and to what end are even more important. A National Bureau of Economic Research study on financial literacy and retirement revealed a tool as simple as a low-cost, direct-mail campaign could motivate a recipient to make an average increase of $1,150 in annual contributions.

A further study anchored goal-setting to simple, turn-key retirement communications. Employees at a large technology firm received one of two types of email messages reminding them about the opportunity to adjust their 401(k) contribution rate before the end of the year.

The first group received a generic message reminding them to take advantage of a company match in contributions. The second group received a customized message that tied their personal contribution to a specific outcome: “For example, you could increase your contribution rate by 1% of your income and get more of the match money for which you’re eligible…” The employees received various ‘goal’ percentages. The mention of higher savings goals raised income contributions by as much as 2.2%, while lower or no goals had little to no effect on increasing contributions.

In short, an educated saver will save more and will save for specific reasons.

What’s your end game?

The conscious decision to start saving for retirement is shaped by your goals for retirement living. Your current lifestyle likely influences your expectations for retirement. So, what level of income do you need to maintain a similar lifestyle, or one that is slightly scaled back (to account for less space, transportation and spending needs)? That figure is your replacement rate. In other words, how much retirement income will you need to replace the lifestyle and income you’re used to throughout employment? While the Department of Labor recommends an 80% replacement rate, others hover around 70% in order to maintain a similar lifestyle pre- and post-retirement. As of 2013, Social Security will generally provide around 40% of your replacement income for current retirees. But, how will you account for the rest?

What’s happening around you?

Savvy planners know that retirement is in their own hands and not anyone else’s. While you will likely draw some form of Social Security benefits, the amount of these funds available will almost certainly change over time. Currently, Social Security benefits are calculated using an average of your earnings (after a minimum point threshold is met). As the number of Baby Boomers continues to place a strain on this program, it becomes more likely that the payouts will change. Similarly, if your employment contract includes a defined benefit pension plan, be aware that those payments are never fully guaranteed. Whether your retirement horizon is 5 years or 30 years away, stay informed about workplace retirement plan policies and Social Security regulation changes. This information is important to review as you shape the composition of your retirement income and your saving strategy.

So, when is the best time to start?

Older Americans who approach retirement without sufficient savings can make up for lost time by taking advantage of ‘catch-up’ contributions over and above certain ordinary thresholds. Younger Americans have time on their side. No matter your age, saving for retirement is about bridging the replacement income gap. What have you saved, and what do you still need to provide for the retirement of your dreams?

Measuring the gap lays the foundation for your retirement saving strategy.

Be sure to consult with a financial professional who can discuss retirement planning in more detail.

Sources:

National Bureau of Economic Research. “What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving.” March 2012 Paper.  February 2012 Paper. 

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

7 Habits of Happy Retirees

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

1. Put Health & Wellness First

Good health sets the stage for the very best retirement experience. Your health is the primary determinant of your ability to enjoy your new retirement lifestyle. You’ll need both energy and physical fitness to spend time with others, to pursue new activities and to travel. Devote a portion of your time to developing healthy routines for exercise and a well-rounded diet. These practices set the stage for both physical and mental well-being. Remember, money can’t always buy health. And more importantly, wealth is not an equal substitute for wellness.

2. Build a Strong Foundation at Home

Retirement isn’t a path that you travel alone; it’s one that you share with a spouse, family or other loved ones. If you weren’t able to invest enough time in those relationships throughout your working career, recommit to doing so now. Spouses in particular face the biggest adjustment once both are fully-retired. Replace your sense of frustration with curiosity and a desire to learn something new about your loved one. Explore new activities together and rekindle the connection that shaped your relationship years ago.

3. Keep Your Financial House in Order

You are the architect of your retirement savings plan, and your work continues even after you cross the retirement threshold. Every building design requires maintenance and upkeep. Your retirement plan is no different. Review your income and expenses regularly, and note any variances outside of your spending limits. Resist the urge to indulge in extensive travel during your first year of retirement; that’s when you’re the most likely to overspend. When you exercise discipline, you gain the power to eliminate financial stress and uncertainty.

4. Invest in Others

You’ll never know what the market will return…but an investment in others will always yield positive dividends. Take time to mentor young professionals, or even the company leaders who stepped up to fill your shoes. You offer a wealth of wisdom and perspective from your working experience. Share your best practices and the lessons you learned, even the tough ones. When you’re confident enough to share some of your mistakes too, your mentees benefit from your honesty and candor.

5. Explore New Interests

There’s probably a time in your life when you sat on the bench on a sports team, or were passed over for the lead role in the school play. If you felt like your skills weren’t ‘good enough’ back then…there is nothing holding you back now. There is no one to impress and no one to let down with your performance. It’s not about being in the spotlight; it’s about finding joy in the act of simply trying.

6. Expand Your Social Universe

Expanding your horizons with new hobbies and activities lends you the opportunity to expand your circle of friends as well. Staying engaged in the local community and building new relationships adds personal fulfillment to your time in retirement. If you don’t have companionship at home, building new relationships with those around you is even more important.

7. Respect the Law of Retirement Inertia

Scientifically speaking, an object in motion stays in motion, and an object at rest, stays at rest. The same applies to retirement. Exercise your ability to discover new activities and to master new skills. It will keep you physically active and mentally sharp. Flexing intellectual muscle extends the years of your life and the enjoyment you find in them too.

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

What is Retirement? 5 Common Misconceptions

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

If you ask adults aged 40, 50 or 60 about their outlook for retirement, you’ll receive widely different answers. As we age, expectations for our own retirement take shape and soon become an immediate reality. Our career paths and savings history are suddenly prominent plot lines in our life story, and they become the foundation for the next chapter in life. No matter your age, it’s critical to examine your expectations for retirement and how closely they match your personal, financial and professional reality.

Retirement Misconception 1: Choosing when to retire is easy.

Today, the choice to retire is less influenced by age than it is by financial considerations, health conditions or family responsibilities. For example, women in particular are more likely than men to plan for retirement to coincide with a partner’s retirement plans. The voluntary or involuntary choice to retire affects satisfaction with the retirement experience. Studies by Ohio State University revealed that forced retirement (due to poor health, company lay-offs or another reason) resulted in greater difficulties in transitioning away from work. In contrast, adults who made a voluntary choice regarding the timing of their retirement were more likely to adjust successfully.

Retirement Misconception 2: Retirement is the end of my career.

Retirement isn’t a finish line; nor is it a finite point in your career. In fact, about twice as many Americans aged 65+ continue working today compared to twenty-five years ago. While many of these adults continue to work to supplement retirement savings, others work for pleasure in part-time roles, advisory roles or as mentors to younger professionals. Retirement doesn’t mean ‘not working.’ Rather, it is an opportunity to pursue projects more closely related to your passions or to take on projects that didn’t fit in your busy professional schedule.

Retirement Misconception 3: The transition to retirement is easy.

Simply put, retirement isn’t easy. In fact, retirement is a major lifestyle change that affects physical, mental and emotional health. Consider that work typically occupies at least 8 to 12 hours, if not more, of your day. When faced with an expansive quantity of time, many retirees find that their chores, hobbies and daily plans aren’t as fulfilling as expected. The struggle to fill the professional void with additional activities is often accompanied by emotional challenges. Those who held high-stature career roles tend to struggle the most in defining their personal identity in retirement. If you’re nearing retirement, begin thinking about how you’ll spend your days.

Retirement Misconception 4: I’ll take better care of myself in retirement.

Retirement is one of the most important times to improve personal care. When faced with extra time, retirees usually have the best-laid plans for new exercise routines and healthier dietary choices. In reality, if an exercise routine and healthy diet were not a part of your life prior to retirement, you are not likely to make drastic health and lifestyle improvements now. However, physical activity and personal interactions are important components of a healthy retirement. Savvy retirees combine activities such as hobbies, part-time jobs or volunteer roles that require moderate daily activity.

Retirement Misconception 5: The money I’ve saved will last long enough.

As retirees transition from amassing wealth to spending it, sound financial management is of the utmost importance. First-year retirees are the most likely to overspend as they plan vacations and adventures. In reality, retirees must understand the delicate balance between time and money throughout retirement. Income often becomes smaller and more fixed as the amount of time to spend it drastically increases. As you structure your retirement spending plans, it’s critical to evaluate your monthly living expenses and to develop a plan for end-of-life care. Meetings with your financial advisor should continue regularly throughout retirement in order to ensure you remain on target financially.

Sources:

Harold Meyerson, H. (2013, March 06). Steering America toward a more secure retirement.  The Washington Post .

Ohio State University Extension Senior Series; Facts About Retirement; Price, Christine A. Ph.D.

“Honey, I’m Home!” – For Good: The Transition to Retirement” HYG-5159-96 Kirk Bloir 

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

What is a Realistic Retirement Budget? #retirement #budget #financialplanning #thinkahead #money #starttoday

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

It’s important to live by a household budget during your working years, but it’s even more important as you begin retirement.  As you prepare to live on a fixed income, planning is key.  According to a recent Survey of Consumer Finances, the median American married couple earns approximately $60,000 per year near retirement and has approximately $100,000 in non-housing wealth.  However, your income and assets at the end of your career are just one component of your retirement budget.

Measuring the adequacy of a retirement plan depends on the retiree and his or her goals for retirement.  While there is no ‘one-size-fits-all’ retirement budget, there is a realistic approach to shaping your plan. Certified Financial Planner Board of Standards, Inc. guidelines recommend a detailed personal cash flow forecast. But, even the best-laid plans change. Your budget starts with an estimate of your income replacement ratio.

Most experts estimate that you’ll need 70% of your pre-retirement income to maintain the same standard of living in retirement as you enjoyed throughout your working years. A bulletin released by the Social Security Administration detailed the difficulty of constructing this figure. It is generally calculated using household income, shared income, non-housing financial assets and potential income from financial assets. It sounds complicated, but it doesn’t have to be. At its most simple level, think of your replacement ratio as the sum of your retirement income sources.

Your replacement ratio is less than your pre-retirement income because of three factors:

• Income taxes are lower after retirement, as income is generally lower and retirement income, such as Social Security, is taxed at a lower rate.
• Your retirement saving approach has shifted.
• Work-related expenses are reduced or eliminated.

The sum total of your income must be enough to cover your everyday living expenses, healthcare, unplanned expenses and end-of-life arrangements. Your replacement ratio is unique to your household; it’s driven by your individual lifestyle expectations, health and ability to save throughout your career.

Identifying Retirement Income Sources

Retirement savings and Social Security benefits form the bulk of most retirees’ income. Additional income may be available via defined benefit pensions or supplemental work throughout retirement. Each income source deserves a thoughtful review of both risk and reward.

• Retirement Savings Plans: As you near retirement age, your portfolio should shift away from risk toward a conservative blend of assets. The goal is to maintain your wealth over the course of your twenty- to thirty-year retirement. Schedule consulting sessions with your financial advisor to ensure you’re on the right path.  
• Social Security: This income typically accounts for 40% of a retiree’s replacement ratio. While you may draw benefits at any time between the ages of 62 to 70, depending upon your year of birth, you must be aged 65-67 in order to qualify for your full retirement age. Social Security withdrawals prior to full retirement age can reduce your benefits by about 30%. Choose the age at which you will begin drawing benefits carefully and monitor long-term trends affecting this program.
• Pensions and Defined Benefit Plans: Few companies today offer pensions, and even fewer offer retiree healthcare coverage. Read your plan thoroughly and identify the age at which you qualify for full benefits. Be aware that this income is dependent upon the business’ ability to thrive and thus pay out benefits over the long run.
• Work-Related Income: As a retiree, you may choose to work throughout retirement; either for the pay and health benefits or for the simple enjoyment of doing so. If you draw Social Security benefits prior to your full retirement age, the government will deduct $1 for every $2 you earn above a specified limit ($15,120 in 2013). Deductions are lessened as you near full retirement age. Calculate how these deductions will affect your income if you draw benefits early.

Identifying Retirement Expenses:

Retirement should come with some form of reward, whether it is travel or the pursuit of your passions. As you review the expenses related to everyday necessities, allocate a portion of your expenses to activities that you enjoy.

• Everyday Living: Calculate your monthly expenses for food, shelter, transportation, clothing and other necessities.
• Leisure and Travel: Many retirees overspend during their first year of retirement as they’re eager to take once-in-a-lifetime trips. Develop a strategic plan for travel and leisure activities, and you’ll be rewarded with more flexibility over the long run.
• Healthcare: Whether you’re in good health or managing a chronic illness, account for unplanned medical expenses that may occur. According to a study by the Society of Actuaries, the risk of paying for long-term care is the largest and earliest disruptor of retirement planning. Not only are these burdens hard to predict, they’re also significant in size and scope.

Completing an inventory of projected income and expenses will help you shape a realistic retirement budget. Its level of adequacy to support your everyday needs and to cover unexpected expenses depends on you. Your risk tolerance as well as your desire to leave a financial legacy shape how much ‘extra’ you’ll want in your retirement budget.

Sources:

“Income Replacement Ratios in the Health & Retirement Study.” Purcell, Patrick. Social Security Bulletin Vol. 72 No. 3, 2012.

“Measures of Retirement Benefit Adequacy: Which, Why, for Whom and How Much?”  Society of Actuaries, 2013.

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

Preparing Psychologically for Retirement

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

What’s your perception of retirement? Will it be a bittersweet parting of ways with your professional career… or a fantastic reward for decades of hard work? As you weigh the decision to retire, you’re probably examining the trade-offs between retiring early to pursue leisure and working longer to accrue a larger nest egg. Financial stability and health are the two of the largest factors influencing preparation for retirement. Psychological preparation should shape that decision too.
Research by the National Bureau of Economic Research captured the effect of retirement on both physical and mental health. Over the first six years of retirement, you’re likely to experience a 5-16% increase in difficulties with daily activities, a 5-6% increase in illness and a 6-9% decrease in mental health. It’s possible to mitigate, or even avoid, these effects. But, you’ll need a solid game plan to do it.

Prepare for…how you’ll make the decision

Many people spend years shaping a meticulous retirement savings plan. Yet, the decision to retire isn’t always a rational one. In a recent bulletin, the Social Security Administration (SSA) described why the agency educates adults about the benefits of later retirement. It’s not just about savings. The SSA is working to offset hyperbolic discounting; a factor in which the decision to take a larger, later reward is pitted against a smaller, sooner reward. When the reward is perceived to be far in the future, people tend to wait longer for the larger reward (in this case, larger Social Security benefit withdrawals). However, as the reward opportunity nears (reaching one’s retirement age), people shift their preferences toward smaller, earlier rewards.
As you prepare for retirement, you will most certainly face this trade-off. Will you stay the course, and follow your long-term retirement plan, or will you take the first available opportunity to retire, even with smaller benefits and income? Impulsivity strikes often, particularly for those with less-than-satisfying careers. Be aware of how you’ll react once the retirement reward appears on the near horizon so that you make a rational decision.

Prepare for…changes in stressors

What made your blood pressure boil throughout your working years? While you’re leaving the workplace behind, retirement is not a stress-free experience. Work stress is frequently replaced by other stressors in your retirement life. Financial stress stems from the adequacy of your retirement savings, and it may spike with changes in market performance. The same happens if poor business continuity threatens the pension benefits you were promised. Health-related factors cause stress too. Whether you’re battling an acute illness, chronic illness, or end-of-life decisions, health issues take an emotional and financial toll.

Prepare for…changes in relationships

Throughout your working years, you’ve probably spent more time each day with office colleagues than with your spouse or family. Retirement shifts the balance back in favor of your loved ones, but that transition isn’t always easy. When faced with an additional 8 to 10 hours of interaction each day, retired spouses find they must work on their relationships—easy interaction isn’t a given.
Relationships are an important driver of mental health throughout your retirement years. Your ability to build friendships and to remain engaged with the world around you can help offset the depression that tends to affect retirees. Meaningful and engaging relationships offer personal fulfillment…and thereby stronger mental health.
Preparing psychologically for retirement requires an in-depth examination of your expectations about the retirement experience. It’s not all stress-free vacations and easy living. Take time to understand your own motivations to retire and how you’ll continue to grow outside of your work-related persona.

Sources:

“Behavioral & Psychological Aspects of the Retirement Decision”,   Knoll, Melissa.  Social Security Bulletin Vol. 71 No. 4, 2011

“The Effects of Retirement on Physical & Mental Health Outcomes.”  Dhaval, Dave. NBER Working Paper 12123.

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

#financialplanning #money #investments #investing #stressfree #savings #retirement #finance #wealth #rateofreturn #life

Sequence of Returns and Income in Retirement

When it comes to planning for retirement, your view should be long-term because it is unknown as to how long your retirement years will be. You should explore financial products that can provide income for your lifetime and that of your spouse’s lifetime. In addition, a portion of your income should be independent from and not reliant on market performance. Finishing confident is just as important as beginning confident.

Up 7%, Up 27%, and Down 13%

A June 2011 report titled Retirement Income — Ensuring Income throughout Retirement Requires Difficult Choices from the U.S. Government Accountability Office (GAO) to the Chairman, Special Committee on Aging, U.S. Senate, examined sources of retirement income and risks, such as the sequence of returns. In the report the above noted annual rate of returns were used to demonstrate the risk about sequence of returns. If you experience these returns in any order, the average annual rate would equal 7%. Meaning, it doesn't matter in which year you would experience any one of these returns, the average result would always be the same. But when it comes time to take income, the sequence of returns throughout the portfolio’s life will make your experience be quite different. If the portfolio experienced these returns as up 7%, up 27% and down 13% (repeating this order throughout your retirement), and you start to withdraw as income each year a fixed 9% of the first year’s balance of the portfolio, your assets would last for 24 years.

Up 7%, Down 13%, and Up 27%

However, if these returns were up 7%, down 13% and up 27% (repeating this order throughout your retirement) and

withdrawing the same fixed 9% each year, your assets would last for 18 years. Each case had the same average rate of return but the sequence of returns was different, which resulted with the first experience being able to provide an additional 6 years to the life of these assets. The GAO report can be found on the agency’s public Web site at www.gao.gov.

Create Your Plan Today

Here are some action steps you can take today to prepare

for retirement:

• Work with a financial professional to fully explore your options for developing your income plan for retirement.

• Understand how your lifetime sources of income work, like Social Security, and explore possible ways to increase these sources.

• Compare your retirement income with the total amount of your expenses — necessary expenses and comfort-living

expenses — to see if you have a retirement income gap.

• Purchase financial products that can provide guaranteed payments for life or for the life of the surviving spouse, and that can provide protection for unexpected events.

• Follow a distribution/withdrawal plan by accessing pools of assets at certain points in time during retirement. This can help you lengthen the life of your assets, gain the potential benefit of compounding growth and systematically increase your retirement income when you need it most. A financial professional can be one of your best allies when it comes to retirement planning. A financial professional can help you develop a comprehensive, holistic plan that addresses all of your goals and needs—and takes care of the people in your life who are important to you.

What is the best age to retire?

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

You turn to your financial advisor for answers to a lot of questions. How can I diversify in today’s market? What’s the best asset allocation for my risk tolerance? Do I have enough saved for my retirement?
Your financial advisor is one of the few professionals that stays with you over a life-long time horizon. From your first child’s college savings plan, to your first glimpse at retirement, your advisor is in it for the long haul. With extended perspective on your life and savings, it seems logical that he or she would have a quick answer to the question What is the best age to retire? It’s easy to expect a black-and-white answer. After all, you’ve spent years, if not decades together, thoughtfully building a nest egg for your retirement. Your financial advisor can’t answer that question alone. A lot of it depends on you.
Selecting the best age for retirement should take many factors into account. Your perfect age will be based upon a combination of financial, health and lifestyle considerations. While your decision may begin with a review of your finances, it needs to be balanced with several factors.
Here are three to consider.
The best age to retire is…when you can maximize the benefits you plan to draw upon
Before you can retire, do you know your Social Security “full retirement age?” Do you know when you qualify for Medicare? Your financial maturity is best reflected in your understanding of the best time to cash in on these programs for the maximum benefit. The Social Security Administration defines full retirement age as a range from 65-67 years of age, depending on the year you were born. You can begin drawing benefits as late as age 70. Waiting until full retirement age or later allows you to capture the support owed to you under Social Security and any pensions without having to sacrifice deductions for early withdrawals. Medicare eligibility kicks in at age 65. Retiring prior to that age means you’ll need a solid plan for health coverage. Stay informed about Social Security regulation changes.
The best age to retire is …when your savings are adequate to support your desired lifestyle
It’s a cold hard fact…some of us need more time to save before we can retire. The size of your retirement savings account is influenced by how early you began saving, how much you contributed, market performance and how diligent you were over your working career. A well-planned retirement requires a detailed budget for your income and expenses. While most experts agree that you’ll need approximately 70% of your pre-retirement income to maintain your current lifestyle, that too depends on your diligence in maintaining a budget throughout retirement. When you delay retirement to a later age, you gain the opportunity to make up for savings gaps or to elevate your lifestyle.
Remember, perfect planning doesn’t mean you’ll have a perfect experience throughout retirement. Make sure your plan accounts for bumps along the road. A study by the Society of Actuaries detailed 16 different post-retirement risks ranging from financial issues (inflation, interest rates, and business continuity) to unexpected crises (healthcare expenses, loss of independence and change in marital status). With age comes wisdom, but retirees are not immune to risks related to bad advice, fraud or theft either.
The best age to retire is…when you have a healthy vision for your post-retirement life
Retirement isn’t a vacation. In fact, it’s a lot of hard work. Beyond the vacations and the new hobbies, most retirees discover they have more time on their hands than anticipated. Filling that time becomes a challenge, and the frustration is often exacerbated by an impatient spouse who finds the newly retired to be constantly underfoot. Retirees who leave highly visible and engaging careers tend to face emotional challenges too. Defining a post-retirement persona forces you to look beyond your professional experience for purpose and satisfaction. Finally, your ability to enjoy your retirement lifestyle is grounded in your health and wellness; consider retiring early if long-term health is a concern.
There is no best age to retire, but there are best practices to follow as you make that decision. You’re at the right age to retire when you have a solid plan to address these financial, social and health issues.

Source: “Managing Post-Retirement Risks: A Guide to Retirement Planning” The Society of Actuaries, 2011. www.soa.org

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This material is intended to potentially assist you in planning for your future. Guardian and its affiliates, subsidiaries, employees, agents, and outside contractors, including but not limited to Dr. Daniel Crosby, are not authorized to provide legal, tax, or investment advice in the materials of this website including but not limited to any blogs. The information provided does not constitute a solicitation of an offer to buy or an offer to sell financial or insurance products. Please note that individual situations can vary, and you should consult your tax, investment or legal advisor for guidance and information specific to your situation. Guardian is not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this material. To learn more about Guardian, visit GuardianLife.com.

How to Create a Retirement Action Plan

Let’s talk about what retirement is and, more importantly, what it isn’t. Yes, retirement is the opportunity to enjoy your golden years and to reap the benefits of a lifetime of hard work. You might even consider retirement to be a reward for a ‘job well done.’

But, retirement isn’t something that’s incredibly well-defined. You are the only person who can answer the questions like What will my retirement be like? and What’s most important to me when I retire?

Creating your retirement action plan is a simple, approachable process. You don’t need an understanding of complex financial projections. But, you do need to consider specific lifestyle and financial issues. As it turns out, simply taking the time to answer a few questions about your expectations is a great start.

Move Beyond the Bucket List

Dreaming is an important part of the retirement planning process. Chances are there is a once-in-a-lifetime trip or experience you have set your sights upon. Balance your dreaming by understanding that the majority of retirement is spent in everyday living. Begin your written plan with your expectations for daily life with family, friends and the community. Consider questions such as:

• How long do I want to work? Will I continue to work in a different role after retirement?
• What kind of standard of living is acceptable? What is a reasonable cost of living?
• What kind of family responsibilities will I have?
• What kinds of personal interests and hobbies do I want to pursue?

Answer the BIG Questions

Take a hard look at what it will take to provide for your basic needs throughout your retirement. As you examine your choices for housing, healthcare and estate planning, you’ll be able to add another solid layer of detail to your retirement plan. Consider these three areas:

• Housing: What is my housing situation? Does it make more sense to rent or to own my home? How much space do I truly need and is there an opportunity to reduce costs?
• Health Care: Am I relatively healthy? Medicare isn’t available until age 65, and it may be cost prohibitive to purchase individual health insurance before that age. Also consider chronic conditions and end-of-life care. The Journal of General Internal Medicine researched end-of-life medical expenses (in the last 5 years of life) among older adults. Typical expenses range from $38,000 to over $100,000 depending on individual needs and the level of care provided. Your retirement plan may need the capacity to provide a lump sum payment towards the end of your life span.
• Estate Planning: What kind of legacy do I want to leave to my family or to my community? Are there assets, investments or property that should be factored into the plan?

Take Action

Now that you’re armed with your expectations for your lifestyle and essential needs, you can calculate how much you need to save for retirement. Your investment portfolio and supplemental forms of income, such as Social Security, pensions or annuities, form the foundation of your plan.

• Calculate How Much You Need to Save: Aim to save at least 10 to 15 percent of your annual income throughout your career. Professionals who reach their 40’s or 50’s without starting a retirement plan need to save two to three times more in order to make up for lost time. If you’re close to retirement, increase your savings as much as possible.
• Decide When to Draw Social Security: The Social Security Administration allows you to draw benefits as early as age 62 or as late as age 70. Understand that drawing benefits before your full retirement age may reduce your benefits by about 30% (or about 32.5% if you’re drawing benefits as a spouse). For those born between 1938-1958, full retirement age ranges from age 65 to age 67. Full retirement age is 67 for those born after 1959.
• Partner with Trusted Advisors: Resist the urge to let your company 401(k) or other retirement account go on autopilot. Turn to the experts to take you where you want to go. Many individuals work with a financial professional, an attorney and an accountant throughout their career and the retirement planning process. Select advisors based upon a strong connection and personal fit. Establish clear expectations for service level, communication and fees in order make the most of the relationship. And if you are not working with advisors, ask a close friend if they have any referrals.
• Uncover how your personality impacts your retirement strategy. Visit theRetirement Style Matters website to gain insight into who you are and how it impacts how you invest. We’ve identified four different retirement styles, or personalities. Which are you? To find out, take the “What’s My Retirement Style” personality assessment. Does it accurately capture your personality and financial mindset?

Remember, retirement is fun. But, the most important part of retiring is the simple act of planning it.