I tell people that retirement planning advice is not simply an important aspect of financial planning; it is, in my opinion, a critical part of life planning. Retirement is a life transition that requires long-term forward planning and preparation. One glaring factor that contributes to the urgency of early retirement planning is an increase in life expectancy. Although life expectancy declined from an average of 78.7 years in 2018 to 76.9 years by the end of 2020, due to the COVID-19 pandemic, people have been steadily living longer.1 We should not forget that between 1800 and 2000, life expectancy rose from about 30 years to a global average of 67 years, and more than 75 years in developed nations.2 Before I offer my advice for retirement planning, it is important to point out that any retirement plan analysis must be framed by one fundamental question: how do you want to spend your retirement? How you answer this question will determine several things, including when to retire, your savings plan, and your investment strategy. For example, do you want to travel the world during your retirement? Perhaps you want to live a simpler life and volunteer your time for a worthwhile cause. Again, your answer to this fundamental question will help your retirement planning advisor develop a plan of action.
When should I retire?
When to retire is largely based on your unique life circumstances. Any advice for retirement that does not take this big picture of how you envision your retirement years will be, in my opinion, misguided. Let’s look at Social Security for a minute, as most of us will rely on these benefits for our retirement. If you were born between 1943 and 1954, your full retirement age is 66, which means you will receive 100 percent of your monthly benefit. You can choose to retire at age 62, but doing so may result in a reduction of as much as 30 percent. If you can delay your retirement to the full retirement age, which now stands at 66, then you will receive full benefits. If you delay your retirement to age 70, you will receive more. Let’s look at a simple example. If you were born on January 1, 1960 (as of 2022 you would be 62) and had an average annual salary of $50,000, you would get a monthly benefit of $1,264 if you elect retirement at age 62. If you wait until full retirement age (66), your monthly benefit will be $1,785. If you delay until you are 70 years old, your monthly benefit will be $2,237.3
How much will I need for my retirement years?
I’m often asked the questions of when to retire and how much money do I need. Let me answer the second question first. You should aim to replace 70% to 90% of your annual pre-retirement income. For instance, if you currently earn $60,000 annually, your retirement income target would be between $42,000 and $54,000 per year. This translates to $42,000 to $54,000 per year in retirement income. Most retirement planning advisors will tell you that the amount you need for retirement will be determined by your sources of income, such as Social Security, pensions, part-time employment, and other considerations like your health and lifestyle.4 This is why as a retirement planning advisor I tell people to have a conceptual roadmap of their retirement years.
How to properly diversify
I’m sure all of you have heard of this adage: never put all your eggs in one basket. In my Wall Street best selling book, Redefining Financial Literacy, I introduced my innovative REALM model, which is a dynamic diversification approach to portfolio management. You want to diversify your portfolio because a variety of investments in a portfolio will yield a higher return.5 Let me give you an example of diversification. For a long time, the 60/40 portfolio, which invests 60% in stocks and 40% in bonds, has been the diversification of choice for many retirement planning advisors. The only problem is that this limited diversification strategy hasn’t worked recently. Bank of America has called, “the end to 60/40” and Goldman Sachs suggests losses may reach 10%.6
Protect your assets
While much of the focus for retirement planning is on having a savings plan, investment strategies, Social Security benefits, and pension plans, let’s not overlook Asset protection. You might be surprised to learn that an asset protection strategy is a natural extension to any financial plan. You have worked hard all of your life building up your retirement savings and building equity in your home. What you need to do now is protect your assets against lawsuits, civil claims, and bankruptcy.7 Although we associate asset protection with high-net-worth individuals, everyone with a home and retirement savings needs an asset protection plan in place. Many people worry about asset protection until claims are made against their property. You need to protect your assets before unforeseen events puts your assets in jeopardy. This is why it is important to discuss asset protection with a qualified financial advisor.
Actionable steps and targeted advice
You simply cannot afford to keep putting off retirement planning. Having a conceptual idea of how your retirement will look like is only the first step. You need to educate yourself by improving your financial literacy. You then need to sit with an experienced and qualified retirement planning advisor who will give you targeted retirement advice. I urge you to read my Wall Street best-selling book, Redefining Financial Literacy where you will not only expand your financial literacy, but also learn about actionable steps that you can apply today to help you secure the retirement you deserve.
1. Allison Aubrey, “The Pandemic Led to the Biggest Drop in U.S. Life Expectancy Since WWII, Study Finds,” npr.org, June 23, 2021. https://www.npr.org/2021/06/23/1009611699/the-pandemic-led-to-the biggest-drop-in-u-s-life-expectancy-since-ww-ji-study-fi
2. Age Up, “A Brief History of Human Longevity,” learn.age-up.com, January 28, 2021. https://learn.age up.com/blog/a-brief-history-of-human-longevity/
3. Social Security Administration, “Retirement Benefits,” ssa.gov, Retrieved 12/7/2021. https://www.ssa.gov/benefits/retirement/planner/1943-delay.html
4. Jim Probasco, “How Much do I need to retire?” Investopedia.com, November 15, 2021. https://www.investopedia.com/retirement/how-much-you-should-have-saved-age/
5. Barclay Palmer, “5 Tips for Diversifying Your Portfolio,” Investopedia.com, June 3, 2021. https://www.investopedia.com/articles/03/072303.asp
