RETIREMENT, A SCARY THOUGHT FOR BABY BOOMERS
December 3, 2018, by The Harvest Group
This content was written by Roger Ingwersen, a guest contributor on Babyboomers.com.
It’s becoming more and more common for people 65 and older to continue working after the expected retirement age. But contrary to popular belief, baby boomers who are ignoring retirement aren’t simply workaholics. While advertisements portray retirement with idyllic images of sailing or strolling on the beach, retirement is actually one of the most stressful times in a person’s life.
Planning for retirement is often uncharted territory for baby boomers and, for some, even more stressful to think about than the job they’ve been doing for decades. Generally, it’s a good idea to start by reviewing your employer-sponsored retirement savings plan at least once each year and when major life changes occur. If you haven’t given your plan a thorough review within the last 12 months, now may be a good time to do so.
Have you experienced any life changes?
Since your last retirement plan review, have you experienced any major life changes?
For example, did you get married or divorced, buy or sell a house, have a baby, or send a child to college? Perhaps you or your spouse changed jobs, received a promotion, or left the workforce entirely. Has someone in your family experienced a change in health? Or maybe you inherited a sum of money that has had a material impact on your net worth. Any of these situations can affect both your current and future financial situation and should be considered as you review your retirement savings needs.
In addition, your annual review is a good time to examine the beneficiary designations on your plan account to make sure they reflect your current wishes. This is particularly true if your marital situation has changed. With most employer-sponsored plans, your spouse is automatically your plan beneficiary unless he or she waives that right in writing.
Say, for example, you remarried and you would like your children to remain as primary beneficiaries on your retirement plan. In that case, your spouse would need to waive his or her right to the assets in writing.
Reassess your retirement income needs
After you consider any life changes, you may want to take another look at your future and evaluate whether your anticipated retirement income needs have changed.
Have your dreams for retirement changed? And if so, will those changes affect how much money you will need to live on? Maybe you’ve reconsidered plans to relocate or travel extensively, or now plan to start a business or work part-time during retirement. Or maybe your health or your spouse’s health has changed and you need to adjust your estimates for health-care costs down the road.
All of these factors can affect your retirement income needs, which in turn affects how much you need to save and how you invest today. Double-check your total accumulation goal and determine whether you will need to adjust your savings or investment plan to strive for different amounts.
Is your asset allocation still on track?
Once you have assessed your current situation related to life changes and retirement income needs, a good next step is to revisit your asset allocation.
Is your investment mix still appropriate? Should you aim for a higher or lower percentage of aggressive investments, such as stocks?
For example, if you’ve determined that you will probably need to accumulate more than you originally estimated, you can strive for this new goal by increasing your contribution dollars, striving for a higher return, or both.
To strive for a higher return, you might consider investing a larger portion of your money in stocks. Alternatively, if you determined that you do indeed have a hard time sleeping at night when the stock market is volatile, you may want to consider investing a larger portion of your portfolio in less risky asset classes, such as bonds and cash.
Revisit your plan rules and features
Finally, an annual review would not be complete without a fresh look at your employer-sponsored plan documents. Check those documents to make sure you fully understand how your plan works, and to see if there are any additional plan features that can help you better pursue your retirement savings goal.
For example, if your plan offers a Roth account and you haven’t investigated its potential benefits, you might consider whether directing a portion of your contributions into it might be a good idea. Roth accounts do not offer a tax benefit at the time you contribute, but qualified withdrawals are tax free.¹
Also consider how much you’re contributing in relation to plan maximums. Could you add a little more each pay period? If you increase your contribution by just a percentage point or two, you may not even notice the difference in your paycheck. But over time, that small amount can potentially add up through the magic of compounding.
You might also review the rules for catch-up contributions, which allows baby boomers to contribute more than younger employees. (Special rules apply to 403(b) and 457(b) plans.)
A little maintenance goes a long way
Although it’s generally not a good idea to monitor your employer-sponsored retirement plan on a daily, or even monthly, basis, it’s important to take a look at least once a year to account for any changes in your life, your retirement income needs, or your risk tolerance and make any necessary changes to your asset allocation. You’ll also want to make sure you’re taking full advantage of the opportunities offered with your plan, if they make sense for you. With a little annual maintenance and these essential tips, you can start your retirement plan and continue to keep it on track for your next phase in life as a baby boomer. See, that wasn’t so scary!
¹A qualified withdrawal from a Roth account is one that is made after a five-year holding period and you either die, become disabled, or reach age 59½. Nonqualified withdrawals from Roth accounts are subject to regular income tax and a 10% tax penalty (to the extent the withdrawal represents earnings).