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Wish you had a crystal ball for retirement planning? Most of us do, and for good reason.
Even if you’re sure you’ll have enough money to retire, there are no guarantees until you get there. If your nest egg runs short, it will be far too late for a do-over.
This is where a financial adviser can help. A financial adviser will know if you’re heavy on risk, not diversified enough, failing to maximize tax advantages, or simply not saving enough.
They will also make sure to take into account your lifestyle and preferences to ensure you’re on the right path to your ideal retirement, and not just following a cookie cutter plan that’s not going to be the right fit.
We asked financial advisers for some of the most important ideas they wish their clients understood when it comes to money, retirement, and the future.
1. Social Security will be around in some form
Andrew McFadden, a financial adviser for physicians, says many clients refuse to accept that Social Security will still be around when they retire. This is especially true if they are part of Gen X or Gen Y, he says, since they are decades away from receiving benefits.
However short on funds we may be, the Social Security Administration projects the ability to pay around 75% of current benefits after the fund is depleted in 2034. This is a key detail, notes McFadden, since many people hear Social Security is going bankrupt and refuse to acknowledge any benefits in their own retirement planning.
“It’s not all roses, but that’s still a far cry from those bankruptcy rumors,” says McFadden. “So lower your expectations, but don’t get rid of them altogether.”
2. It’s OK to “live a little” while you save for retirement
Russ Thornton, founder of Wealthcare for Women, says too many future retirees sacrifice living now for their “pie in the sky” dream of retirement. Unfortunately, tomorrow isn’t promised, and many people never get to live out the dreams they plan all along.
“So many people assume they can’t really live until they’re retired and not working full-time,” says Thornton. “Nothing could be further from the truth. Find ways to experience aspects of your dream life now, whether you’re in your 30s, 40s, or 50s.”
With a solid savings and retirement plan, you should be able to do both – save and invest adequately, and try some new experiences that make life adventurous and satisfying now.
“Don’t accept the deferred life plan,” he says. That future you dream about and plan for may never come.
3. The 4% rule isn’t perfect for everybody
Born in the 90s, the 4% rule stated retirees could stretch their funds by withdrawing 4% per year. The catch was, a good portion of those investments had to remain in equities to make this work.
The 4% rule lost traction between 2000 and 2010 when the market closed lower than where it started 10 years before, says Bellevue, WA financial adviser Josh Brein. As many retirement accounts suffered during this time, it was shown that the 4% rule doesn’t always work for everybody.
It doesn’t mean the rule should be thrown out completely though, nor should it still be followed like gospel. In fact, in 2015, two-third of retirees following the 4% rule had double the amount of their starting principal after a 30-year stretch. These retirees could have benefited from taking out more than the limited 4%, which could have meant an extra vacation each year, or another luxury that they were indeed able to afford.
There’s absolutely no denying the importance of making your retirement dollars last. But, after a lifetime of working and saving, you also deserve to enjoy those dollars to their full capability.
Bottom line, take time to re-evaluate your drawdown strategy every few years and make adjustments as necessary. While you don’t want to go broke in retirement – you also don’t want to miss out on all the incredible things this time in your life has to offer.
Alan Crowhurst / Stringer / Getty Images
4. Retirement looks different for everyone
Minnesota financial adviser Jamie Pomeroy says he wishes people would abandon their preconceived notions on what retirement should look like. He blames the financial industry in part for perpetuating the idea that certain retirement planning accounts and products work for everyone. “They don’t,” he says.
“Some enjoy retiring to the beach, some take mini-retirements before reaching a retirement age, some work part-time in retirement, and some just want to spend time with their grandkids,” he says. “The concept of retirement is dynamic, ever-changing, and defined very differently by lots of different people.”
To find the right retirement path and plan for your own life, you should sit down and decide what you really, truly want. Once you know what you want, you can craft a realistic plan to get there.
5. Investment returns aren’t as important as you think
According to North Dakota financial adviser Benjamin Brandt, too many people focus too much energy on their investment returns – mostly because they are an immediate and tangible way to gauge the success or failure of our financial plans.
Investment returns should only be judged in the proper scope of a long-term financial plan, and “over decades,” he says.
In the meantime, our behavior can make a huge impact when it comes to reaching your retirement goals. By spending less and saving more, for example, we can avoid debt and potentially invest more money over the long haul. Those moves can help us retire earlier whether the market performs the way we hope or not.
6. Small changes add up
When it comes to retirement planning, many people feel overwhelmed right away. For example, some people may realize they need $1 million or more to retire and give up before they start.
Financial adviser Jeff Rose of Good Financial Cents says this could change if everyone realized how small changes – and small amounts of savings – add up drastically over time.
“Someone who invests just $200 per month for 30 years and earns 7% would have more than $218,000 in the end,” says Rose. “Now imagine both spouses are saving, or that they boost their investments incrementally over the years.”
As Rose points out, a couple who invests $500 per month combined and earns 7% would have more than $566,000 after 30 years.
Looking for ways to save money and invest more will obviously make this number surge. If you boost your contributions each time you get a raise, for example, you’ll have considerably more for retirement. Remember even the smallest contributions can greatly add up over the years.
7. Don’t forget about long-term care
Joseph Carbone, founder and wealth adviser of Focus Planning Group, says many future retirees are missing one key piece of the puzzle, and that piece could cost them dearly.
“I wish many of my clients understood the biggest hurdle from passing wealth on to their heirs is long-term care costs,” says Carbone. “Whether it is home health care, assisted living, or the dreaded nursing home. It is real and it is scary.”
According to Carbone, most people have no idea how much long-term care costs and fail to plan as a result. “Even though the average stay is only 2.7 years in a nursing home, the total cost for those 2.7 years could be well over $400,000,” he says
To help in this respect, Carbone and his associates suggest working with an attorney who specializes in elder law. With a few smart money moves, families can prepare for the real possibility of using a nursing home at some point. (See also: Is Long Term Care Insurance Worth It?)
One more thing advisers wish you knew
While financial advisers don’t know everything, their years of experience make them painfully aware of what lies ahead for those of us who fail to plan. And, if there’s one thing financial planners can agree on, it’s this: The sooner we all start planning, the better off we’ll be.