How to Feel Confident About Your Retirement
There's only one sure way you're going to feel confident about your financial security in retirement: Have a plan.
Let me explain why.
Fidelity Investments recently issued a report that surveyed more than 500 financial advisors, and 500 retirees and pre-retirees who work with financial advisors. The survey showed that 81 percent of pre-retirees think that having a detailed retirement income plan is important. Despite this, only 18 percent of pre-retirees who work with financial advisors actually receive such a plan, and only half of that group receive a detailed, written plan.
The problem? Advisors report that providing such a plan is complicated because it's difficult to get clients to focus on the future in enough detail to create an effective plan. In addition, advisors say most plans will quickly become out of date in today's economic environment.
But I think it's entirely possible to develop a detailed, written plan for how to generate reliable, lifetime retirement income. An initial, basic plan would include:
- A strategy for deciding what age you'll start drawing your Social Security income and, if you're married, what age you'll start your spouse's income.
- How you'll generate lifetime retirement income from your IRAs, 401(k) accounts, and retirement savings. This might include buying an annuity, using managed payouts, or some combination of the two.
- The form of payment you should elect if you have a traditional pension plan, including whether to protect your spouse with a joint and survivor annuity.
- A determination regarding whether you need to work and, if so, how much income you'll need to earn and for how long.
- How you'll provide income to your spouse, if you're married, after your death.
Whether basic or comprehensive, any plan is a vast improvement over just guessing how much money you need to retire and how you'll generate retirement income. (And guessing seems to be what the majority of people do, according to the 2011 Retirement Confidence Survey prepared by the Employee Benefit Research Institute.)
A good plan should be able to withstand economic shocks, and in fact, that should be one goal of your written plan. For example, once you've started drawing Social Security and pension benefits and/or bought an immediate annuity, these income items go on automatic pilot. They won't change due to market conditions (unless you've bought a variable annuity).
If you decide to invest your retirement savings and draw them down to generate income -- what's known as managed payouts -- then it's likely that you'll need to revisit your withdrawal amount periodically to take into account changes in the economy since you retired. But there's nothing wrong with that -- this doesn't invalidate the concept of developing a written plan. After all, any plan shouldn't be expected to last for decades. You'll want to revisit your plan from time to time, particularly if there's been a downturn in the market or there's a significant change in your life, such as death of a spouse.
Here's the bottom line: If you're approaching retirement, one of your tasks is to prepare a written plan on how you'll generate retirement income. If you're working with a financial advisor, make sure he or she will help you develop such a plan, even if it's just a basic one.
My father used to tell me "Anything worth doing is worth doing well." This seems particularly apt for something as important as your income for the rest of your life.
More on MoneyWatch:
