The headline caught my attention: “Why $1 million may not be enough.” This particular article in the Sunday business section dealt with saving for retirement. One of the things that has interested me as I start to approach retirement age is that many surveys show that retirees continue to spend more freely in retirement than they had anticipated when they retired. The thought that more than a few retirees are beginning to draw down their savings to live, thus facing the possibility of dwindling income in the future, is somewhat unnerving.
It would appear that sufficient retirement income has become an issue that isn’t going away any time soon. Consider a recent survey showed that less than 60 percent of the population surveyed showed enough savings to maintain their desired standard of living in retirement. Ominously, it did not matter if the group was “boomers” or “Gen Xers;” the result was the same, inadequate saving for retirement. What to do?
First, have a plan! It is imperative that adults – regardless of age – begin to think about setting aside money for retirement.
Let’s start with those who are under the age of 40. If you have a 401k plan at your place of employment, use it! That is especially true if your employer offers a match. A matching contribution is “free money” and one should never turn down free money. Be sure that your allocation of investments lines up with your risk tolerance and your age. Most employers now offer investment guidance inside of the 401k for those who do not have investment experience. If you are unsure whether your employer offers this feature, be sure and ask. Most employers will find a way to help those who have questions regarding their investment options. And, remember, the earlier you start saving in your 401k, the longer you have the law of compounding working for you. I have encouraged (with success) my children to save healthy amounts of their pay into their retirement plans and twenty or thirty years from now, they will be very pleased as investment returns compound over several decades.
Second, don’t depend entirely on Social Security or defined benefit plans (also known as pensions). One of the lessons of the past economic crisis is that pensions are not a “sure thing.” While many public pensions will likely pay out as expected, it is important that pensioners pay attention to the percentage of funding in their pension plan. It is not uncommon in some states to see funding levels below 70 percent, which means that the particular governmental entity has only set aside 70 percent of the expected future cash flows. In Iowa, we are in relatively good shape in the largest public pension (IPERS), but funding levels remain just above 80 percent. Keep an eye on this and try to save in other areas in the unlikely event something goes awry.
Third, before you retire, take stock of your financial fitness. Many persons have retired at 62 or 65 only to find that they don’t have enough money to live a comfortable life style. Do not let this happen to you! If you are in good health and still performing at an acceptable level at your job, it is possible your employer will desire that you work beyond your “scheduled” retirement. A little planning up front can save much hand wringing in what should be an enjoyable part of your life.
Finally, and perhaps most importantly, if you do not have a comprehensive plan, get help. Get help from someone you trust. What does that mean? That means finding someone whose goal of helping you succeed financially in retirement or retirement planning is more important than earning large commission checks. I have always believed in paying someone for good advice. I am a firm believer that you “get what you pay for” and if an investment representative offers very good counsel and shows genuine interest in my financial success, I am more than happy to allow that person to earn their living.
At MidWestOne, we take our corporate operating principles very seriously. “Always conduct yourself with integrity” has been an operating principle since our founding in 1934. If you have not participated in any formal sort of retirement planning, now is the time and we have many competent investment representatives who would love to give you an honest appraisal of your financial future.
After all, $1 million just may not be enough …