When it comes to retirement, many of us are running scared. One of the biggest fears is that we'll live long enough to run out of money, according to a survey by Merrill Edge.
Financial adviser Philip Rousseaux says the economy may be recovering, but some of the changes wrought by the Great Recession may be long-lasting: lower-than-expected earnings and investment returns, depleted savings, loss of jobs and income. "People in their 40s and younger have some time to retool their plan, but Baby Boomers need to think with more urgency," says Rousseaux, president and founder of Everest Wealth Management in Baltimore.
To help you plan with urgency, I asked financial advisers: What are the five things people, especially Baby Boomers, can do right now to prepare for retirement? Here's a compilation of their recommendations:
1. Set a goal and start planning. " People spend more time planning a vacation than they do a 25-year retirement," Rousseaux says.
Figure how much you will need for retirement. You can get a ballpark estimate at choosetosave.org, run by the non-profit Employee Benefit Research Institute. "If you are not (on track), figure out what you have to do to get there," says Stuart Ritter, senior financial planner at T. Rowe Price. "It's time to gather your information and get a picture of where you are headed. It's time to start putting in your information and get a personalized picture of the path you are on."
Take the long view. "Take a step back, take a look and see what your plans are, how much you have saved, how confident you are that you can retire," says Alok Prasad, head of Merrill Edge. "Take a pulse check on where you stand in terms of preparedness to get to the retirement stage."
2. Figure out what retirement means to you. "I've worked with thousands of clients," says Joe Sicchitano, senior vice president and head of financial planning at SunTrust. "I can tell you with certainty that 100 percent know what they are retiring from, a much smaller percentage know what they are retiring to."
You should know what you plan to do in retirement, he says. "What will I do? Where will I live? Will I travel early? Do I want a second home? It's critical when it comes to discipline needed to act out the plan to help achieve it."
And do you really want to play golf all day for the next 30 years? "You need to think about your lifestyle," author and personal finance coach Lynette Khalfani-Cox says. "So many people get into trouble after retirement because they pick an expensive hobby. Or they want good weather and move to San Diego, but their family is in the Midwest. So they have huge travel bills. Do they want to own? A house or a condo? Do they want to rent?"
3. Manage your debt. "Don't take on high-interest debt, and pay down high-interest loans, by refinancing or other mechanisms," Prasad says. "It would be a big drag in retirement."
"Anybody who is seriously thinking about preparing for retirement must reduce their debt," Khalfani-Cox says. "Not just credit cards. 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."
4. Hire a financial adviser. Make sure you have the right mix of stocks, bonds and other savings.
"People get overly focused on short-term market risk, and forget about longevity risk," Ritter says. "Your biggest risk is not what the market does in the next three quarters. It is that you will wake up on your 70th birthday, or 80th or 90th, needing a substantial amount of money, and not having it, if you don't have growth in your portfolio."
5. Be prepared for the unexpected. "There is a reason why we call things emergency funds," Khalfani-Cox says. "Be prepared for unexpected challenges. These are predictable but unfortunate life events. You are more likely to be disabled than you are to die. People will get life insurance, but fail to get disability coverage or get long-term care. It's a burden. In retirement, don't stick your head in the sand about the eventualities that happen to all of us. People get sick. They need additional health care. Whatever you can do to shore up finances (before retirement), it will help you.
"Get a handle on your family relationships and your family plans," she says. "So many people tell me their retirement plans were thwarted by family members. I don't think many thought they were going to have to help their adult family members. You need to learn how to say no. Make sure their problems don't become yours.
"You really cannot discount the extent to which family can be a huge financial drain when you are in retirement," she says. "Even if you have financially prepared, it could be a struggle. If you were already on shaky ground, having to constantly dish out cash to adult children may be the thing that breaks you financially."