A Better Retirement Backup Plan
Since the Great Recession started nearly five years ago, the number of older Americans in the workforce has increased significantly.By some estimates, there are roughly…
Since the Great Recession started nearly five years ago, the number of older Americans in the workforce has increased significantly.
By some estimates, there are roughly 25 percent more people age 65 and older who are still on the job. And while some older workers simply enjoy going to work every day, financial strains have forced many others to continue working.
Working longer could help you overcome shortfalls in your retirement savings. But because that might not be enough, make sure your alternative strategy goes beyond logging a few extra years as an employee.
“Anybody who plans on working after 55 needs a Plan B, even if they’re very happy with their career,” says Donna Peterson, senior vice president in Retail Retirement at Wells Fargo. “Things can change quickly.”
Fortunately, there are steps you can take now to help ensure that working longer does not have to be a critical part of your retirement plan. Tools such as Wells Fargo Advisors’ Envision planning process can help keep your retirement strategy on track from year to year, giving you a better chance of retiring on time — and staying retired. Developing strong saving and spending habits now will help you avoid rethinking your retirement plans years or decades from now.
Here are four key strategies to consider:
1. Save even more. Don’t let the option of working a few more years lull you into saving less than you originally planned.
One strategy: Increase your retirement savings by a modest amount every year. An increase of just 1 percentage point each year can help fuel strong long-term growth in tax-advantaged savings accounts such as 401(k)s and IRAs.
And, it’s likely you won’t miss that additional savings increase each year.
Also, consider stashing any extra cash from such things as year-end bonuses or tax refunds in a savings account or an IRA.
“It’s found money,” Peterson says. “If you put it in a checking account, you’ll probably spend it.”
2. Rein in spending. Analyze your monthly budget and look for opportunities to cut back.
From the monthly cable bill to expensive dinners out, you could find areas to save a few hundred dollars a month. It’s not only good practice for living on a reduced income in retirement, but also another way to find more money to put toward retirement savings, Peterson says.
3. Put yourself before your legacy. Your estate plan may include leaving a financial legacy for your children, grandchildren and favorite charities. But if you’re having trouble staying on track in pursuit of your retirement goals, it may be time to rethink that legacy.
“You need to have some flexibility in mind and understand that this is your backup plan,” Peterson says.
Keeping your children informed of your situation — especially if you’re using up some of your legacy funds for retirement — can also help them as they plan for their financial future.
4. Adjust your portfolio strategically. While it’s standard practice to move toward a more conservative investment strategy as you get closer to retirement, it can be tempting to change course if you’re falling short of your savings goals.
“You need to make sure you’re not taking on excess risk in an attempt to make up shortfalls,” Peterson says. “At the same time, you want to take on enough risk to help your savings keep pace with inflation.”
Talk to your Wells Fargo Financial Advisor about investment plans that strike an appropriate balance between risk and return potential.
Everyone wants retirement to go as expected. But you should protect yourself should your strategy encounter problems. Above all, don’t wait till retirement is a year or two away before taking action, Peterson says.
“You need a backup plan that will provide you with a reasonable level of income in retirement if you are unable to stay in the workforce.”
This article was written by Wells Fargo Advisors and provided courtesy of Terry R. Campbell and Susan Paolo, Financial Advisors in Chardon at 440-286-2553.
Investments in securities and insurance products are: NOT FDIC-INSURED / NOT BANK-GUARANTEED / MAY LOSE VALUE
Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.
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