The Employee Benefit Research Institute (EBRI) recently reported that older workers (those age 55 and older) are working longer. This may not come as a surprise to anyone. The stock market has given everyone a rough ride over the last decade. Employers are reducing benefits and some stopped their 401(k) matching contributions when the economy dipped into a recession. It has been difficult to accumulate enough to retire.
Most of these issues are recent. However, the report reveals this trend started back in 1993. Even back when the stock market was doing well and the economy was still humming along, workers were pushing back their retirement plans.
Source: U.S. Department of Labor, Bureau of Labor Statistics. www.bls.gov/data
Americans are losing confidence in their ability to afford a desirable retirement and have chosen to work longer. EBRI’s Retirement Confidence Survey shows the percentage of workers who believe they will have enough money to retire in comfort fell from an already low 18% in 2008 to 13% in 2009. That marked the lowest level in the 19-year history of the survey, and institute officials attributed the plunge to growing concerns about health-care costs and the economy.
Confidence in achieving a later retirement and spending less—of having a financially secure retirement—has also dropped, from 41% in 2007 to just 20% in 2009. The declines occurred across all age groups and income levels.
This trend cannot all be attributed to the stock market and the economy. A lack of retirement planning fuels this anxiety. In the EBRI survey, fewer than half of respondents said they had even tried to calculate how much they would need during retirement. And in another recent survey, by Bank of America, only one in three respondents was “on track” with retirement planning; 23% said they haven’t started planning at all.
Should it come as a surprise that you are not going to achieve a goal that you haven’t planned for yet? If you want to be able to retire in the lifestyle to which you are accustomed, you need a plan to accomplish it. Part of your plan will include an investment strategy that will help you achieve your goals. This strategy should be structured to take advantage of the ups and downs in the market. Without a strategy, investors allow themselves to be overcome by the fear that accompanies the natural corrections and bear markets.
If you have a comprehensive plan for your retirement years, you’re bound to feel more confident, no matter what the economy or the markets are doing at the moment. But planning for retirement doesn’t end with drawing up a document. Monitoring your progress and making changes as necessary to keep you moving toward your goals is an important part of financial planning.
The sooner you start this process the better your chances of success because you will have compound interest working for you longer. Those who are already close to retirement age should keep in mind that how much you spend is as important as how much you accumulate. The 4% rule says that you should plan to spend no more than 4% of your nest egg each year. Therefore, if you want to spend $50,000 per year in retirement from your savings, you will need to accumulate $1,250,000. Controlling your spending so that you can live comfortably on $40,000 would allow you to reduce the savings goal to $1 million.
The stock market and economy is no more uncertain today than it was in 1993 and it will be no more certain 10 years from now. Take control of your future. Make a plan and start implementing it. You will probably need to make course adjustments along the way. That’s the nature of planning.
- Start planning your retirement today. Compounding interest over time is your greatest ally.
- Estimate your desired annual income and divide this amount by 4% to get the size of the nestegg you will need to retire.
- Plan your investment strategy to take advantage of the market ups and downs and then stick with it.