When It Comes to Retirement, Timing Is Everything
Most everyone dreams of the day they can finally retire and live the life of leisure.
Yet recent evidence suggests that most near-retirees and retirees need to do a better
job of timing and long-term planning.
One study, conducted by the Society of Actuaries, looked at retirement risk factors
and concluded that while decisions around the timing of retirement are among the
most critical, for most individuals, those decisions are not carefully planned out (1).
The study found that while a high percentage of retirees/preretirees have considered
delaying retirement, when asked how a three-year delay in retirement would or could
have affected them financially, almost half of current retirees said a delay would have
made them no more financially secure. Among current workers, nearly 40% felt a delay
would have no impact on their future finances.
Another trouble spot is time horizons. According to the study, the typical retiree has a
planning horizon of just 5 years; preretirees plan just 10 years out. A shockingly low
number -- 7% of retirees and 13% of preretirees -- look 20 years or more into the
future when making important financial decisions. Even fewer respondents have plans
to account for their life expectancies.
Clearly these gaps in planning can have major implications for your financial security
and standard of living in retirement. Consider the following points when planning for
your own retirement.
Should You Delay?
For many, Social Security is a major component of their retirement income. Social Security
benefits increase substantially with retirement age. For instance, for those with full Social
Security benefits the monthly payout is substantially higher at age 70 than it would be if you
opted for early retirement at age 62. For example, a 50-year-old today would receive an
estimated $1,030 per month by opting for early retirement at age 62, $1,577 by waiting until
age 67, and $1,995 by waiting until age 70 (2). Visit the Social Security Administration's website
at www.ssa.gov for more on benefits and retirement age.
Consider a Long Horizon
Regardless of income level, maintaining lifestyle expectations through a retirement that may
last 30 years or more requires careful planning. Researchers refer to this planning challenge
as "longevity risk," or the risk that an individual could outlive their retirement income. To plan
for such a contingency, many financial experts suggest the following game plan:
Withdraw very conservatively (just 4% or 5% annually) from your retirement accounts.
Consider purchasing a long-term care insurance policy, which covers nursing
home and other long-term care expenses.
Maintain an allocation to stock investments, for their long-term growth potential (3).
Consult with a financial professional.
1Source: Society of Actuaries, "2009 Risks and Process of Retirement Survey Report," February 2011.
2Source: Social Security Administration, Benefit Estimates Quick Calculator.
3Investing in stocks involves risks, including loss of principal. Past performance is not a guarantee of future results.
© 2012 McGraw-Hill Financial Communications. All rights reserved.