June 24, 2016
After spending your whole life working hard, earning money, and being responsible, all of a sudden the wealth you've accumulated needs to produce income. But will it be enough?
With no cost of living adjustments for social security, a low interest rate environment, and a 1% cost of living adjustment in 2015 for the NYS pension, these two benefits are tasked with the job of replacing your income. Yet, it may not be enough.
A study done in 2012 by the Employee Benefit Research Institute* cited that only 14 percent of Americans are very confident that they will have enough money to be comfortable in retirement. Taking control of your finances can help address how much you will need to retire.
If we assume that between your pension and social security only 60 percent of your income will be replaced, then 40 percent will need to be covered by other saved assets or earned income. With some, the shortfall may be addressed by a deferred compensation plan, IRAs, or non-retirement accounts. Others may work in retirement. The bottom line is that in order to retire comfortably you need to create a second layer of savings.
Here are easy ways to save:
- Contribute to Roth or traditional IRAs, personal investment accounts, or available employer sponsored retirement plan. Work with an advisor to choose the right strategy for you and your family.
- Set up automatic contributions adding to your investments so you don't have to think about writing a check every month. You have complete control over how much you save.
- Increase your savings amount as much as you can afford. If you aren't sure what you can afford, work with your advisor to understand your expenses and income. Establishing a good cash flow pattern will give you a better idea of how much you can afford to save.
Once you have a plan stick to it. While your investment values will likely change, the more time you have to let them grow the better the likelihood that you accomplish your end goals. Keep in mind that your plan should be customized specifically for you. There is no one size fits all when it comes to personal finances.
The other thing to keep in mind is that planning for retirement is a family process. Your pension is a valuable asset but if you pass away, your spouse may only receive half of your pension benefit. And if both you and your spouse pass away, then there may be no pension benefit for your children, depending on how you set up your plan. This example illustrates another reason to have additional savings: if you are able to leave behind income generating assets to your surviving partner or family.
Realizing that social security and your pension may not be enough to retire can be intimidating. But it does not have to be.
The New York State and Local Retirement System* provides some general rules for retirement planning which are excellent:
- Beware: If any savings or investment plan sounds too good to be true, it probably is- so ask questions and use good judgment.
- Determine Risk: the greater the return or the higher the interest rate, the greater the risk.
- Diversify: Don't put all of your eggs in one basket-this can be achieved by using a variety of investments to accomplish your goals.
- Learn: Do your homework- it is important to trust and understand what you are investing in and who you are investing with.
- Seek a Financial Expert: Don't be afraid to get help- ask for a consultation, ask questions, and check their credentials.
Take control and maximize the time you have to prepare. With more knowledge, time, and a personalized plan you can position yourself and your family to live the one life you have the way you want.
* http://www.osc.state.ny.us/retire/planning/index.php
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).