Retirement in America has changed. If you’re hoping to kick back and enjoy your golden years, relying on a pension and social security may no longer be enough to ensure your financial security.
“When I started in this industry, pensions and social security were still largely viable options for retirement security,” said Will Fuller, Executive Vice President, President, Annuities, Lincoln Financial Distributors and Lincoln Financial Network.“That is not the case today.”
With defined benefit pensions becoming more rare and social security trust fund reserves expected to dry up in 2037, according to the Social Security Administration, workers eyeing their retirement need to start planning earlier than ever before. For a smooth retirement, here are five common hurdles to keep in your sights:
1. Protect yourself against market crashes.
Many retirement calculators are powered by statistical averages, showing you what you can expect to take home if the market performs according to historical averages. That, however, can be a big if — and when markets stumble, retirees can be left in the lurch.
“Market volatility is not something new,” Fuller said.“It’s a reality and something investors need to understand and be prepared for.”
One of the best ways to guard against market volatility is to make sure that an annuity is part of your portfolio. Annuities offer a guaranteed income stream that you can count on no matter the condition of the market.
“There is only one investment solution that protects against market declines, lower interest rates and outliving your money, and provides for your surviving spouse and family – that’s annuities,” Fuller said.
2. Accurately calculate how much you’ll need to maintain your lifestyle.
Setting your savings goal too low can leave you struggling as the years go on, and it’s a problem that people commonly face. Too often, they’ll rely on a general rule of thumb that may not take their specific circ*mstances into account.
“It’s common in retirement planning to make an educated guess as to how much money you might need, without fully understanding the combination of savings and income that are necessary to cover everyday expenses, like your mortgage, utilities and groceries, over a lifetime,” Fuller said.
Instead of choosing a final number that sounds large enough to cover your future expenses, carefully calculate your required monthly income to maintain your current lifestyle. Include ongoing bills like your mortgage, your car payments, your utilities and any other recurring expenses. It’s important to build up to your “magic number” from the ground up instead of pulling one out of thin air.
3. Diversify your future income streams.
As a general rule, your retirement income should be a mix of two distinct categories: protected income and investments.
Protected income includes social security, defined benefit pensions and annuities. Each one offers the safety of a reliable monthly check that you can count on. Keeping some of your savings invested in the market, while more risky, can help you keep growing your money during retirement to keep up with inflation.
By building a portfolio includes both, you can keep all of your bases covered.
4. Make sure that your family members are on the same page.
As uncomfortable as it can be to speak openly and unabashedly about your finances, having a meaningful discussion with your family members is essential to set expectations and make sure that you’re all on the same page.
If you have parents that are living, for example, you may wish to clarify whether they need or expect you to support them as they continue to age. If you have adult children, talk to them about your intentions for the future.
At the end of the day, it’s important to remember that your retirement will affect more people than you may think. They don’t always need to have a say, but they should at least be informed of your plans so that they’re not caught off guard when making their own decisions.
5. Expect the unexpected.
No matter how thoroughly you’ve planned, it’s impossible to predict the conditions of your retirement precisely. From life expectancy to interest rates to government regulations, you’re surrounded by factors that you simply can’t control.
To learn more about how to mitigate those risks, talk with a financial adviser. An adviser can help you think through different possible scenarios and can set you up with an annuity if you’re interested in a protected monthly income.
“We help families feel more confident in their retirement future, so they can continue to make their own choices to improve their lives and the lives of their families," Fuller said.
With a comprehensive retirement plan, you can be prepared for anything.
Interested in more advice on how to start a conversation with your loved ones to prepare for upcoming retirement hurdles? Visit lfg.com/unspokenplan.
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