If you are concerned about being able to retire, you are not alone. Many Americans worry about whether their retirement savings will be enough to live comfortably. In fact, when Americans think about retirement, the top concern for many is a fear of running out of money — which they fear even more than death.
The decision to retire is a very personal one that depends on a number of important factors, such as your age, financial circumstances, health, and family situation. You also need to know whether you are eligible to collect a retirement benefit from your pension or sponsored retirement plan. Be aware that many traditional pension plans have both age and service requirements you must meet before you can start collecting a retirement benefit. If you work for the University of Illinois (including UIS, UIC, or UIUC) or another state retirement system and have questions about your eligibility, be sure to speak to your financial advisor about your specific circumstances.
Know Your Unique Needs
Today’s retirement culture demands that retirees develop personalized retirement strategies that reflect their unique financial life. From using online calculators for estimating withdrawals to creating a retirement strategy with a financial advisor, you can approach retirement planning in many ways.
As you look ahead, you will need to understand how various factors such as life expectancy, wealth, income needs, risk, and market environment affect your calculations. With these details in place, you and your advisor can develop a strategy designed to balance your current cash flow while preserving your long term income needs.
If you have run the numbers and think you may have a retirement-income shortfall, do not panic. Several strategies can help you increase your potential retirement income or reduce your expenses.
Know How to Address Any Retirement Gaps
Increasing your savings rate may allow you to make up your retirement shortfall. Contribute as much as you can to tax-advantaged retirement plans, and consider opening a Roth IRA or taxable investment (brokerage) account. If you are 50 or older, use catch-up provisions to boost your retirement contributions.
Delaying retirement can help you buy time. By working longer and adding to your savings, you will have more time to grow your assets, increase Social Security benefits (if you are younger than 70 and qualify to receive these funds in your state), and shorten the amount of time your savings must last. University of Illinois employees do not contribute to Social Security, so that will likely reduce your retirement income.
Downsizing your home and living expenses can help you decrease the income you will need in retirement. Many retirees are empty nesters who can reduce their expenses by moving into smaller homes. This can save you money on maintenance, insurance, and property taxes. And, it will provide you more funds and time to travel, visit with friends, and enjoy unique experiences.
Working during retirement can create extra income while keeping you active and doing something you love. Many educators retire but continue teaching part time. Senior administrators become consultants and professionals. Other retirees pursue passions for gardening, lecturing, or writing. Keep in mind, though, that working while collecting payments may affect your Social Security benefits if you are younger than your full retirement age.
Managing Social Security and Pension limitations can help you prepare to have the retirement income you need. At least 15 states do not offer Social Security to professors, teachers or administrators, and not every educator qualifies to receive pension benefits. If you work in public education and do not pay Social Security taxes at the government job that provides your pension, the Government Pension Offset (GPO) may reduce your Social Security spouse, widow, or widower benefits by up to one-half. Further, if you do receive Social Security and are eligible for a pension based on earnings that your Social Security does not cover, the Windfall Elimination Provision (WEP) may reduce your benefits.
To manage your retirement gaps, you need to know your specific restrictions and opportunities.
A financial advisor can take a look at your overall circumstances and help you design a strategy with the goal of maximizing your retirement income. Your advisor will be able to help you design strategies to address any gaps or additional planning challenges in your Social Security or pension benefits. With their support, you also will be able to develop tactics that help balance the need for growth against your risk appetite, time horizon, and future goals.
Final thought.
Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning offers personalized concierge services to meet your wealth management needs, including financial planning, investment management, ESOP diversification, retirement income, insurance, and estate planning. As a fee-based financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states.