You would be hard-pressed to find someone that says the market declines of 2022 have not impacted some element of their pre-retirement readiness. Maybe their savings amount has changed, or they changed their investment allocations, or they've adjusted their retirement age. Whatever the impact, for most of us, our financial well-being has been negatively impacted.
Many have made changes to their retirement planning since the beginning of the year and are worried what the next few years might bring. In fact, according to research from TIAA, more than 1/3 are less confident that they will have enough money to live comfortably throughout retirement. Further:
- More than 1 in 5 have decreased the amount they are saving for retirement, with almost 1 in 10 stopping saving altogether;
- Almost 3 in 10 are less confident that they are even saving enough for retirement; and
- 3 in 10 have changed their investment allocation.
Yet, no matter where you fall among these statistics, you need to recognize that you have a laundry list of items to tackle before you retire - and it's likely your list of to-dos has changed over the past year too.
You might also be surprised to learn that some people actually retire and then sit down to plan. Try to avoid that sequence if you can. Here are four essential steps you must take as you think about your retirement:
- Visualize What's Next
You might be surprised to know that those who spend the most time planning for the non-financial components of retirement generally get the most out of their retirement. Start with this simple question:
"If your doctor told you that you were going to die tomorrow, what goals would have gone unfulfilled and what would you have missed?"
Retirement planning is as more about putting together your life plan versus figuring out the ratio of equities to fixed-income. What's on your bucket list? Write it down.
And of course if youre married, these conversations should happen together, well before retirement. Think about location. Think about lifestyle. See if you have overlapping bucket list items and move those to the top of your list.
- Get a Handle on Current and Future Expenses
Your bucket list, your location and your lifestyle will dictate your expenses now and expenses can make or break your retirement. Do you track your current expenses? If not, start today. Not tomorrow. Technology has made tracking your expenses pretty easy.
Also, don't blindly assume that you'll spend less in retirement than you do today. You are actually likely to spend more in retirement, at least in the first few years.
- Increase Your Cash
It's likely that most of your assets are tied up in retirement accounts and your primary residence. And it's also likely that your bank account covers a few months of your current expenses. Well, when you no longer have direct deposit, your bank account is going to look tiny – and it's likely to increase your anxiety too. So, bump up your cash balance in your bank account (ignoring the fact that your bank won't pay you much for holding your cash).
- Hire an Expert to Put Together Your Plan
This one sounds self-serving, right? But while you know that you need to put together a plan and while you're capable of putting together most of a plan, if you don't hire an expert to do, one of two things will happen. You will either 1) not do it or 2) do it but miss some critical elements. Both can be disastrous.
A full financial plan, when done properly, will go far beyond just asking whether you have enough money to call it quits. It will be the intersection of your cash flow, insurance, investments, retirement, tax and estate planning. Further, your financial planner will be able to identify any big gaps in your plan as well as put you on the right track. Look at it this way:
If you're going to run out of money, do you want to know now or 20 years from now?
Look, everyone wants a killer asset allocation, with the perfect lineup of stocks and bonds, the right collection of investment styles, and the best balance between risk and caution. But putting such a portfolio together is tough. Especially if you don't have a plan.