Winging it is no way to plan for retirement

You’ve heard this before: Failing to plan is planning to fail. This couldn’t be more true than when it comes to retirement. Simply put, planning increases the chances that you’ll have a successful retirement. And planning is much better than winging it, which so many people do.

According to a recent survey conducted by the Transamerica Center for Retirement Studies (TCRS), more than one-third (37 percent) of workers don’t have any strategy for their retirement. These people are truly winging it.

The study also found that almost half (47 percent) of all workers have a strategy, but it’s not written down. Such a plan is better than nothing, but most likely it’ll be incomplete.

Fewer than one in five workers (16 percent) have a written plan, which is ideal. Research in behavioral economics shows that having a written strategy increases a person’s commitment to carrying out the plan.

So what should go into a successful retirement strategy? The TCRS study provides a handy checklist of factors to consider. Here’s the list (the percentage beside each factor shows the prevalence of workers who include the factor in their plan):  

  • Social Security and Medicare (55 percent)
  • Ongoing living expenses (52 percent)
  • Total retirement savings and income needs (49 percent)
  • A retirement budget that includes basic living expenses (48 percent)
  • Health care costs (46 percent)
  • A plan to help ensure your savings last throughout your retirement (40 percent)
  • Investment returns (37 percent)
  • Inflation (31 percent)
  • Long-term care needs (27 percent)
  • Pursuing retirement dreams (27 percent)
  • Tax planning (21 percent)
  • Estate planning (19 percent)
  • Contingency plans for retiring sooner than expected and savings shortfalls (14 percent)

The reality is, a robust retirement strategy for an older worker should consider all these factors. The only possible exception: Estate planning might not be important for some people because they may not have heirs they want to leave money to, or they don’t have enough savings for a meaningful legacy. 

In particular, the last item -- contingency planning -- is particularly critical for older workers. Various surveys show that roughly half of all current retirees stopped working sooner than they expected, often due to a health crisis or layoff. A contingency plan to address an unplanned retirement could include identifying backup bridge jobs; knowing how you might immediately reduce your living expenses, including downsizing or reducing auto expenses; and making sure you could continue your health insurance.

Here’s one important retirement planning item that’s often overlooked and not on the TCRS list: Planning for much more additional time with your spouse or partner, if you’re married or living with someone. Plan for the activities that you’ll do together as well as the time you’ll spend apart. 

While it’s important to spend time together, it’s also essential to nurture your own identity and to agree on the appropriate balance with your partner. It’s also a smart idea to make sure your spouse or partner understands all the important factors in your retirement plan.

One final thought: Working with a retirement adviser is a good way to increase the odds of retirement success, yet only 39 percent of workers in the TCRS survey report that they worked with an adviser. If you decide to do so, you’ll want to find an adviser who’s skilled at planning retirement income and is compensated without conflicts so he or she has your best interests at heart.

It will take some time and effort to develop a robust retirement strategy that works for you. And while nobody said that being retired for 20 to 30 years or more would be easy, it should be worth the effort, considering what’s at stake.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.