Rodney Brooks, USA TODAY
Things have been good this year. The stock market has had an incredible run. The economy and housing are starting to turn around. And we have all saved enough money to live an incredible lifestyle in retirement.
Well, two out of three ain't bad.
Most of us have not saved enough for retirement. I've doled out dozens of tips for retirement and common mistakes in 2013. So, as we head into the new year I'd like to remind you of some of the most important.
1. If you haven't already, start thinking about retirement and retirement planning - especially if you've turned 50. "Spend more time on retirement planning and invest more dollars for retirement," says Maclyn Clouse, professor of finance at the University of Denver's Daniels College of Business. "Do not rely only on Social Security. As Congress and the president look for ways to reduce our budget deficits, it is likely that we will see cut backs in payments to future Social Security recipients. It is also likely that the age at which you can begin to receive payments will be increased."
2. Have a plan for your life in retirement. Plan for some sort of transition, and have activities planned. "One program I teach is never retire, which deals with the psychological transition into retirement," says author and former financial planner Frank Maselli. "The typical structure is a man has been working 35 years. The spouse has been home. Suddenly the husband is home. It can be the cause of family stress and many families exploding or imploding. Take normal stress of a transition, and throw in the fact that your wife can't stand seeing you all day."
3. Don't let family members throw your retirement off track. We all love our kids, but financial planners warn to be careful not to let them hurt your retirement preparations. Retirement accounts are not a good way to fund a college education. There are so many more options for saving for college, and with a little planning you can keep you retirement on track and send your child to college. Also, parents should have a plan for when the kids return home, whether it's after college or because some of a life emergency.
"You have to draw some lines and limits," says Lynnette Khalfani-Cox, founder of AskTheMoneyCoach.com. "Nobody has an infinite amount of cash. We want to help our children or grandkids. For most Americans it is a challenge to secure a comfortable retirement of their own, let alone help extended family."
4. It's never too late to start saving, but late starters need to temper lifestyle expectations. If you are 50 or older, you need to start thinking about changes you need to make to be able to retire. Some may have to keep working to make up for all those years of not saving. Others may have to sell their homes or downsize.
5. The possibility of running out of money in retirement is real for millions of people. You should not underestimate your life span. There's probably a good chance you will live into your 80s or 90s. And if you don't have a well-thought-out plan, you could outlive your savings. Planners recommend that people consider delaying retirement.
"If a married couple retires at 65 , there's a good chance one will live into their mid-90s," says Joe Heider, regional managing principal for Rehmann Financial Group in Cleveland. "If you live another 25 years, you're in retirement for half of your working life. If you retire at 60 you are almost in retirement as long as you were working, and you need to account for inflation."
6. If you are planning to continue to work in retirement, you may be in for a shock. Many people who have not saved enough plan to make up the difference by continuing to work and delaying retirement. Problem is, for a variety of reasons, many people are not able to work into their 60s. The biggest reason is health issues. But, yes, age discrimination is an issue as well.
7. Don't underestimate health care costs in retirement. "A shock that I've seen that devastates people in retirement is unanticipated medial expenses and health issues," says Kent Caldwell-Meeks, senior director of investment and fiduciary services at Wells Fargo Wealth Management Group. He says people will be in retirement for 20 to 40 years, and need to have a financial plan that accounts for that.
8. The less debt you have going into retirement, the more likely you are to find success in your retirement. "Anybody who is seriously thinking about preparing for retirement must reduce their debt," says Khalfani-Cox. "This goes into a number of areas, not just credit card debt. There's mortgage debt and even student loan debt, because so many older Americans have gone back to school and financed their education or co-signed for their adult children. All of that debt is really a ball and chain around you if you are going into your golden years."
9. Figure out how to make Social Security work best for you. Most financial planners recommend that you delay taking Social Security for as long as you can. That makes sense in that every year you delay receiving Social Security, your check increases by 8%. But the truth is most people cannot afford to wait. A good financial planner will work with you to figure out what strategy is best for you.
"It's true that the longer you wait, the more you get," says Jeff Bucher, President of Citizen Advisory Group in Perrysburg, Ohio. "But that's not always the easier plan for everybody. We look at the holistic portfolio and all the choices. If we wait till 70 that will be the max age, and for some people they can't do that. Even at 66 or 67, some people need that money earlier. When you boil it down, Social Security is a significant amount of retirement income, but little planning goes into what to elect to get. There are different strategies to maximize what you get."
10. Do not be too conservative in your retirement savings. "There is a tendency to for people in retirement to be way too conservative in their investments," says Heider. "They no longer feel the need to hedge against inflation. Most need exposure to the equity markets. They have to have some exposure, in most cases, if they are going to have a reasonable expectation of maintaining that nest egg during retirement."