Financial Rules to Follow In 2016

Financial Rules to Follow In 2016

Retirement Planning Tips You Need to Know

My hopes for 2016 starting off as a whopping good year for the economy and stock market certainly fell short! How are these for some headlines:

  • “Dow has worst four-day start to a year on record”
  • “Historic week: Dow plunges 1,079 points”
  • “Stock market erases $1 trillion so far in 2016”
  • And that was just in January.

What I’ve said for many years, tongue in cheek, was, “Which will come first, the end of my life or the end of my money?” Now it’s not so funny!

Underestimating Retirement

In October 2015, the Wall Street Journal online had a screaming headline “Baby Boomers Hugely Underestimate What They Need for Retirement.” Not very comforting.

The article cited a study by BlackRock, an American multinational investment management firm. The study said the Boomers they surveyed estimated to have a $45,000 annual income in retirement, but had only saved enough to provide just over $9,000 annually. It continued that even retirees making over $250,000 a year had not saved enough to make the income they had expected in retirement.

According to Russ Koesterich, BlackRock’s global chief investment strategist, “The amount of money you need to generate a certain level of income is a lot higher than it used to be.” He cited low interest rates as a primary reason. People are no longer getting the rates of return on certificates of deposit, savings accounts and bonds that were available in the past.

Couple that with the feeling many Boomers and Millennials have that investing in the stock market is like playing craps with what little money they have been able to save. Add that to not knowing how long they will live, and you have a combination that affects both financial behavior and investment decisions which, in turn, affect financial outcomes down the road.

So, here’s the dilemma facing many Boomers today: risk the stock market volatility, which is virtually the only place to get a decent rate of return these days, or work a lot longer and live a much more meager life in order to have something for retirement.

What about Social Security? You know, the fund you paid into your entire working life, the one the government promised would help take care of you in retirement, the one Congress has been dipping into for years and leaving IOUs (which are never paid back!) — the fund estimated to run out of funds in 2037?

In 2013, the U.S. Government Accountability Office (GAO) analyzed financial data for households of people 55 and up. The study found 29 percent of households don’t have a defined benefit plan or retirement savings — pretty frightening.

What’s even more frightening is the GAO found of the 29 percent, 65 percent either don’t own their home or own their home with debt still left to be paid. On top of this, the findings showed the 29 percent “have just $1,000 in financial assets, and annual income of just $18,932 and a net worth of only $34,760.”

Next Steps

What should you do if your life fits this scenario — or even if you just want to make sure you have enough to retire comfortably? Here’s some advice from financial people a lot smarter than me.

1. Know Your Worth

Sit down and make a list of all of your current assets and debts so you have a realistic starting point. Eve Kaplan, a certified financial planner and contributor to says you should “consolidate your holdings and paper trail so you know what you own.” Here’s an effective online calculator to get started: What are you worth?

2. What’s Your Retirement Number?

The income method takes your current income and multiplies it by a factor (Fidelity suggests eight) to determine how much you need to retire. For example, if you make $55,000 annually, you’ll need $440,000 to retire. This assumes you’ll also receive social security and will use a 4 percent withdrawal rate.

A second method, the expense method, uses a detailed monthly budget to determine what your retirement expenses will be. Once your likely expenses are known (mortgage, health insurance, car, vacations, etc.), subtract your social security income along with other income sources to determine how much you’ll need in savings. Again, use the 4 percent withdrawal rate and multiply by 25.

The third method, the savings method, requires you to save a percentage of your gross income. The suggested rate under this method runs from 10 to 20 percent. The major drawback, as I see it, is savings accounts pay virtually nothing in today’s market.

3. Get Smart!

Part of the problem is people are generally not sufficiently educated when it comes to money. A survey by Voya Financial found workers scored an average of 4.1 out of 10 on their retirement knowledge, planning and saving, and retirees scored an average of 5.5.

Retirement Resources

With all of this weighing on me, I started researching online to find some resources to help us…here’s a list of them:

  • Boomerator is a free online advice network for Boomers, from Boomers. It covers lots of topics, one of which is financial and legal. One of the neat things on the site is a section for Boomers looking for a job.
  • The Financial Planning Center has a ton of tools on its site — everything from a Retirement Planning Tool Checklist to Financial Basics for Boomers. As this site says, “It’s Never Too Late to Take Hold of Your Finances, Even for The Over Fifty Baby Boomers.”
  • AMAC, the Association of Mature American Citizens, a great alternative to AARP, has numerous areas on their website to help you with retirement plans, financial plans, etc.

Writing this article has served as a really good catharsis for me. I feel a whole lot better knowing I’m not alone in my fear of outliving my resources — and now I know where I can go to do something about it!