By Rachel Barrow, AVP Marketing, Individual Markets, Guardian Life Insurance Co. of America®
Dreaming about retirement may bring to mind relaxation, travel, and leisure time. Many people find, though, that planning for it can be stressful – but it doesn’t have to be that way. If open enrollment time has you thinking about how you’ll fund your retirement, you’re not alone. A recent survey by the Employment Benefit Research Institute1 shows that retirees are less confident than they were last year that they will have enough money saved for basic expenses, health care, or long-term care.
How can you face the future with more confidence? Look for resources to help you chart this path. Turn to your current employer for help; Guardian’s 5th Annual Workplace Benefits Study,2 Small Business, Big Benefits, states that over 44 percent of small businesses are increasing employee financial education over the next five years to help employees make better benefits decisions. Or, make a plan that’s focused on what you feel will matter most to you in retirement (family, lifestyle, relationships, health, etc.), seek out the best retirement strategies and products and, most of all, invest in yourself. It can help you go a long way toward making your second act (retirement) a reality.
Plan with care
As you start considering your retirement plan, it helps to look at how certain financial products can help you reach your goals. Whether those products protect future income, help cover future care, protect your earning ability from the possibility of premature death, accidents, or long-term illness, or provide for market-related growth opportunities, having a well-rounded package of products may make a difference.
To create the best retirement strategy, you need to balance having the right products in place, while recognizing some of the issues you may encounter along the way. Keep these ideas in mind while you are planning your future:
- Keep up with your defined contribution (DC) plan: Open enrollment is an excellent time to increase how much money you’re saving, but you can ordinarily do it anytime throughout the year (based on your plan’s provisions). Many retirement planners underestimate the amount they will need to maintain the standard of living they want. Remember to account for inflation, health care costs, and unexpected expenses you may encounter.
- Keep a diversified investment portfolio: As you examine your investment choices during open enrollment, remember the benefits of a diversified selection of investments. Even if your investment choices get more conservative as retirement approaches, you may not want to avoid stocks entirely. After all, keeping pace with inflation can help your nest egg retain its purchasing power. See your financial advisor to discuss how you feel about risk and your retirement income goals.
- Have realistic retirement income goals: The old rule of thumb is that you will need 80 percent of your annual pre-retirement income, because of the (assumed) reduced cost of living in retirement, including the possible elimination of mortgage payments. But when you factor in health care costs, dining out, travel, and pursuing other passions, this amount may not be enough for you. Take the time to do the math and don’t be shy to get help from a financial professional.
Explore your options and mind any gaps
After you do your calculations, if you find your projections mean you may be falling short of your retirement income goals, don’t despair. Whether you feel you’ll have a shortfall in your retirement budget or are just trying to find solid, reliable sources to pay future expenses, focusing on guaranteed monthly income can help.
Many experts agree. For instance, Robert Merton (MIT professor and co-recipient of the 1997 Nobel Memorial Prize in Economic Sciences) wrote in Harvard Business Review3 that people should focus their retirement planning on monthly income instead of trying to find a magic number of how much they’ll need in total retirement savings.
What are the sources of guaranteed income that can help you produce the monthly retirement income you’ll need? Some will be familiar to you; others may not be. But it’s worth taking a close look at guaranteed income, the products that provide it, and how they can be an essential source of monthly retirement income:
- Social Security: Just about everyone knows about Social Security, but how much do you think you’ll receive? Visit the Social Security Administration’s Retirement Estimator4 to find out. When you see your estimated future benefit, keep in mind that Social Security generally only accounts for part of most people’s retirement income – and that your future benefits are not (at this point in time) guaranteed.
- Company Pensions: If you’re lucky enough to work for an employer that offers a pension plan, be grateful. Once a major source of guaranteed retirement income, employer-sponsored pensions are not a common benefit offering today.
- Bonds and CDs: These investments give predictable (if not absolutely guaranteed) returns, with possible tax advantages, and can help round out your investment portfolio. Their rates of return can be somewhat limited, however.
- Annuities: By paying an insurance company a specified amount of money, you can receive regular payments for a set amount of time, or for life. There are many different types of annuities that can establish cash flow now (immediate annuities) or later (deferred annuities) – at fixed or variable interest rates.
Invest in yourself
Budgeting for your retirement can seem like a daunting task, but making a plan is the first step. Pause, build a checklist of tasks for yourself, and check off each one as you complete it. It also helps to consult a financial professional, who can help you identify your unique retirement vision – and the steps you can take to help yourself achieve it.
Each person’s plan will be different. The important thing is that you take the time to invest in your own future. You may find that it not only alleviates stress, but also helps you take the first step toward achieving the retirement of your dreams.
Rachel Barrow leads the Product Marketing team for Individual Markets at The Guardian Life Insurance Company of America®. She has been with Guardian since 2009 and in the insurance business for over 20 years. Her team produces educational tools and resources focused on strategies to help individuals, families and small business owners achieve financial security.
1 Employee Benefit Research Institute (2018, April 24). 2018 Retirement Confidence Survey. Retrieved from: https://www.ebri.org/docs/default-source/rcs/1_2018rcs_report_v5mgachecked.pdf?sfvrsn=e2e9302f_2
2 5th Annual Workplace Benefits Study (2018, October 15), Small Business, Big Benefits. https://www.guardiananytime.com/gafd/wps/portal/fdhome/insights-perspectives/emerging-trends/small-business-benefits-study
3 Merton, Robert C. (2014, July-August). The Crisis in Retirement Planning. Retrieved from https://hbr.org/2014/07/the-crisis-in-retirement-planning
4 Social Security Administration. How the Retirement Estimator Works. Retrieved from https://www.ssa.gov/benefits/retirement/estimator.html