Are you on Track?

When it comes to retirement, most people aren’t.

Studies show that some 75% of all Americans reaching retirement age have less than $30,000 socked away to take them through their golden years. And when you consider that people will need about twenty times their annual income to maintain their standard of living, for those folks the future looks bleak indeed.

Far too many people have unrealistic expectations of retirement. They believe they’ll be able to get by on Social Security and with the help of Medicare… be able to continue to work in retirement, if need be… or maybe move to a smaller house or a less expensive part of the country.

When it comes to retirement, a sort of magical thinking seems to take hold. And takes the place of realistic planning.

It’s easy to feel sorry for people like that, and agree that, yes, it’s a serious national problem.

Fortunately for you, it’s all a bit academic. After all, you’ve got nearly half a million in your retirement accounts. You’re all set for retirement, right?

Don’t be too sure.

Even people with over $1,000,000 in their 401(k)’s and IRAs aren’t guaranteed a successful retirement. Particularly if they have unrealistic expectations about how much they’ll need to maintain their current lifestyle when they retire.

So what can you do to assure your successful retirement?

First of all, it’s important to remember that a successful retirement requires more than saving money. It requires careful planning. The kind that can help you avoid the mistakes most people make.

Costly mistakes

Take savings, for example. Most people simply don’t save at all. And if they do manage to save, they don’t start soon enough or put enough away.

Worse, they tend to put their money in all the wrong places: Bank savings accounts that earn less than one percent a month … low yielding CDs … or into investments whose risk far outweighs the prospect of reward.

Many don’t take full advantage of even the painless ways to save such as employee-offered 401(k)’s. They fail to max them out or to contribute to a Roth IRA when they’re eligible.

And, of course, they aren’t taking advantage of long-term tax planning as it pertains to their investments. Simply because nobody has told them such things exist or how to incorporate them into their retirement planning.

Most people have no idea how much income they’ll need to maintain their current lifestyle. If they do they come up with a figure, usually it’s too high or too low.

Others overlook the higher healthcare costs they’re likely to incur as they get older or fail to consider a long-term care plan. Some studies indicate that a 65-year old couple that retired in 2012 will have some $240,000 in healthcare cost during retirement.

When and if

If you’re concerned about your retirement, you aren’t alone. It’s one of the main reasons people come to financial planners. They want to know if and when they can retire.

If those are your questions, then it pays to find a planner who actually plans – not one who merely concentrates on gathering assets. Those so-called planners
are more concerned with selling you a product than helping you reach your goals.

You should seek an advisor who views retirement planning not as an end unto itself but as as part of a total plan. A total plan based on achieving your goals.

Such an advisor should help you prioritize your goals and plan for the unexpected. And he or she should be able to employ sophisticated software to determine if you’re truly on track. The old rules-of-thumb no longer apply.

Today’s better advisors use both a straight line simulation and the more exhaustive Monte Carlo simulation to test your plan. The latter provides literally thousands of situations to determine if your plan will stand up under every conceivable worst-case scenario.

Your advisor should be able to help you access alternative investments when appropriate. These are investments that will have a low correlation to the rest of your portfolio and are not readily available to most people. Using them properly can reduce the overall volatility, and risk, associated with your portfolio.

Above all, you’ll want an advisor who will tell you the truth about your situation. No matter how painful that truth might be.

The case for an RIA

While good advisors are free to run their businesses in a variety of different ways, you are much more likely to find these qualities by working with a fee-based Registered Investment Advisor. An RIA has a legal obligation to act only in your best interest and offer easy-to-understand advice that isn’t tied to the sale of any product.

Finally, you might recall that a few hundred words back we said that a successful retirement required more than money. It’s also true that part of your retirement planning should acknowledge that retirement will mark a huge change in your life. For most of us, our jobs … our positions … our businesses define us.

When we retire, all of those will be absent, and it can be a tremendous blow to both your ego and sense of self worth. You’ll need to figure out what you want to take the place of these things, so that you can redefine yourself outside of your career. That step will go a long way toward ensuring a successful, and a happy retirement.

Just remember that financial advisors aren’t miracle workers. No advisor can fix a financial problem that has developed over a lifetime the day before you retire or promise an annual return of 20% on your investments.

But the right advisor can help you get your retirement on track. It’s certainly worth tracking one down.