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Financial advisors are frequently asked some version of the question “Can I Retire?” The Employee Benefit Research Institute (EBRI) recently released its 2018 Retirement Confidence Survey. The latest survey offered several key findings:

Only 32% of retirees surveyed felt confident that they will be able to live comfortably throughout their retirement.

Retiree confidence in their ability to over basic expenses and medical expenses in retirement dropped from 2017 levels.

Less than one-half of the retirees surveyed felt confident that Medicare and Social Security would be able to maintain benefits at current levels.

It is essential that Baby Boomers and others approaching retirement take a hard look at their retirement readiness to determine any gaps between the financial resources available to them and their desired lifestyle in retirement. Ask yourself a few questions to determine if you can retire.

What kind of lifestyle do you want in retirement?

You’ll find general rules of thumb indicating you need anywhere from 70% to more than 100% of your pre-retirement income during retirement. Look at your individual circumstances and what you plan to do in retirement.

Will your mortgage be paid off?

Do you plan to travel?

Will you live in an area with a relatively high or low cost of living?

What’s your plan to cover the cost of healthcare in retirement?

Remember spending during retirement is not uniform. You will likely be more active earlier in your retirement. Though you may spend less on activities as you age, it is likely that your medical costs will increase as you age.

How much can you expect from Social Security?

Social Security benefits were never designed to be the sole source of retirement income, but they are still a valuable source of retirement income. Those with lower incomes will find that Social Security replaces a higher percentage of their pre-retirement income than those with higher incomes.

Recent news stories indicating that the Social Security trust fund is in trouble is not welcome news for those nearing retirement or for current retirees.

What other sources of retirement income will you have?

Other potential sources of retirement income might include a defined-benefit pension plan; individual retirement accounts (IRAs); your 401(k) plan, and your spouse’s employer-sponsored retirement plans. If you have other investments, it is important to have a strategy that maximizes these assets for your retirement.

If you are fortunate enough to be covered by a workplace pension, be sure to understand how much you will receive at various ages. Look at your options in terms of survivor benefits should you predecease your spouse. If you have the option to take a lump-sum distribution it might make sense to roll this over to an IRA. Also determine if your employer offers any sort of insurance coverage for retirees.

Where does this leave me?

At this point let’s take a look at where you are. We’ll assume that you’ve determined that you will need $100,000 per year to cover your retirement needs on a gross (before taxes are paid) basis. Let’s also assume that your combined Social Security will be $30,000 per year and that there will be $20,000 in pension income. The retirement gap is:

Amount Needed $100,000 Social Security 30,000 Pension 20,000 Gap to be filled from other sources $50,000

Where will this $50,000 come from? The most likely source is your retirement savings. This might include 401(k)s, IRAs, taxable accounts, self-employment retirement accounts, the sale of a business, and inheritance, earnings during retirement, or other sources.

To generate $50,000 per year you would likely need a lump sum in the range of $1.25 – $1.67 million at retirement.

Everybody’s circumstances are different. Many retirees do not have a pension plan available to them, some don’t have a 401(k) either.

Look at where you stand and take action

Some steps to consider if you feel you are behind in your retirement savings:

Save as much as possible in your 401(k) or other workplace retirement plan while you are still employed

Contribute to an IRA

If you are self-employed start a retirement plan for yourself

Keep your spending in check

Scale back on your retirement lifestyle if needed

Plan to delay your retirement or to work part-time during retirement

Providing for a comfortable retirement takes planning. Don’t be lulled into thinking your 401(k) plan alone will be enough. If you haven’t put together a financial plan, don’t be afraid to enlist the aid of a professional if you need help.

Approaching retirement and want another opinion on where you stand? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for more detailed advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring regarding the financial transition to retirement.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

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