Five-year plan needed to ‘fine tune’ retirement

The Bakersfield Californian
February 9, 2015

My boomer financial clients are used to me beating the drum to save money for retirement. They now are hearing me say they must develop a five-year plan.

No, this does not replace the need to be lifelong savers and investors. Rather, it is a plan that focuses on the five years approaching a desired retirement date.

“Retirees who expressed the highest levels of satisfaction in retirement are also those who took concrete steps to put both their emotional and financial lives in order at least five years or more before retirement,” a recent study from MassMutual revealed.

Regrettably, the study also found that only 31 percent of U.S. adults approaching retirement “carefully research and plan every detail of their retirement plans.” Many conceded that their retirement strategy boiled down to “winging it.”

I advise my clients and the students in my Levan Institute for Lifelong Learning classes at Bakersfield College to take the following five-year pre-retirement steps:

  • Match up and max out. If your employer provides a savings plan, such as a 401(k), and will match your contributions, contribute at least to the match. If you can, contribute up to the IRS 401(k) limit of $18,000 a year. If you are 50 years of age or older, you can contribute an additional $6,000 under a “catch up” provision. The maximum contribution to a traditional or Roth IRA is $5,500 a year and $6,500 a year for people 50 years of age and older.
  • Estimate retirement financial needs. Develop a budget and track your current spending. Estimate your retirement income from such sources as pensions, Social Security and investments. You have three choices if your current spending far exceeds your expected retirement income: reduce your spending; maximize your savings; and work during retirement. Likely your retirement will include some of each choice.
  • Assess readiness. Computing expenses and income is a big part of assessing readiness. But this assessment also should include a review of your family’s history. How long do people live in your family? Were they in good health? No one can accurately predict how long they will live, but if you have longevity in your family, prepare for a lengthy retirement. If you have chronic illnesses in your family, prepare for health care cost.
  • Diversify and protect your investments. Get professional advice. Often company savings plans offer financial planning services. Seek help from these advisors, or private ones. Reduce your risks and protect investments from market volatility. Prepare a will, or trust.
  • Consider your retirement lifestyle. Do you want to continue working, or open your own business? Take an inventory of your past and present hobbies and interests. Will they continue into retirement? Do you want to relocate? Many websites and agencies exist that can help with lifestyle planning. If you are thinking about relocating, go to RetirementLiving.com and Relocationessentials.com. If you want to volunteer, check out Handsonnetwork.org and VolunteerMatch.org. If you want to work, check out RetiredBrains.com, RetirementJobs.com and SeniorJobBank.org. To combine travel and education, go to roadscholar.org. These are just a sampling of resources.

“Our research on retirees and pre-retirees tells us that retirement can be and should be an extraordinarily happy time in our lives as long as we start to strengthen our emotional bonds and exercise financial planning discipline well before we plan to retire,” said Elaine Sarsynski, executive vice president at MassMutual Retirement Services.