Society of Certified Senior Advisors: Preparing for Retirement: The 7-Step Plan

Many boomers are stressed out trying to save enough for retirement. Planning well can be half the battle.

After steep losses in the markets last year, even folks who thought they’d saved enough to retire on are having second thoughts. Boomers are the first generation raised largely with defined contributions (usually to 401[k] plans) rather than defined benefits (pensions) expected to carry them through retirement. The changeover has been problematic for many.

Lifespans are increasing, lengthening the time that older adults expect to live in retirement … and the years their nest egg must last. Healthcare costs have risen dramatically, and it’s more likely than ever that seniors will end up in an expensive retirement facility or nursing home over some part of their life.

Retirement Savings

The average household net worth of this cohort born between 1946 and 1964 is an impressive $1.2 million. However, that includes some very wealthy individuals. Averages are derived from adding up a group’s total net worth and dividing it by the number of people in that group. The more telling median net worth, midway along a frequency distribution, is only a little over $200,000.

Boomers Who Left the Workplace Often Fired

In spite of the Fed raising rates, the labor market remains tight. An exodus called the Great Resignation occurred during the COVID years, when people quit their jobs at rates not seen before. A new study reveals that many older folks aged 55 to 74 didn’t just leave; they were fired.

While reporting about the Great Resignation leads us to believe that these workers quit, the research found that “most of these ‘retirements’ occurred after periods of unemployment rather than directly from employment.” To clarify, they got canned, spent a while unemployed, and then retired after not being able to find work.

Many lost their jobs in the early days of COVID-19. About 35 million older employees were working as of March 2020, but a month later 11% (3.8 million) had lost their job. Of that number, only 2% decided to retire then, but after a year 400,000 were involuntarily retired. Will they return? Study authors concluded that “low levels of wage growth suggest that the decision to remain retired may not reflect the preferences of many retirees, but rather the lack of demand for their skills and experience.”

Many savers in the boomer generation were hit hard by the great recession of 2008. Fearing for their portfolios, they pulled money from the market and turned to the safety of bonds at the start of a long period when interest rates were low and returns were meager. Those who looked to the steady yields from savings accounts fared even worse, with some of the lowest interest payouts in recent history.

Others doubled down and bought up depressed real estate, or stashed money in a market that produced a very long bull cycle. Some made a fortune in the booming tech industry, or simply held good W-2 jobs and kept putting money into their retirement account.

Whether you’re on the shakier side of covering retirement, or doing well enough to have many options, there’s a lot to consider when you stop working. So, how can those of us who are somewhere in the process of retiring improve our odds of living comfortably, no matter what life brings?

Know your budget numbers. Keep track of your current spending, on paper or digitally, for at least a year. It’s easy to be spending more than you think you do for restaurants, clothing, vacations … you name it. You want to have a firm grip on expenses for two reasons. First, you may be able to pare down the outflow and sock more away. Second, you’ll need to analyze which expenses may go up, and which may go down once you’re not working. This will help you figure out your future budget for needs and wants in retirement.
Go over your investment accounts. You may have an old 401(k) at a company you worked for a decade ago, or other stray accounts you’ve almost forgotten about, that need to be rounded up. Should your 401(k) be rolled into an IRA? Should your IRAs be consolidated? Is the money invested properly, with diverse assets? Should you roll a portion of your IRA into a Roth? Is there a right time to make any of these moves down the road? If you are unsure about what to do, talk to your company’s benefits team about a current retirement account. You might also benefit greatly by talking to a representative at your brokerage, or by hiring a financial professional.
Plan for Social Security. There are different ways you can make withdrawals, and it’s critical that you’ve looked at your options and chosen a course of action. Go to My Social Security and create an account to see when you can get benefits and how much you’ll receive. You can claim as early as 62, but it pays to wait until full retirement age or up to age 70 to increase your benefits. Social Security is a lifetime annuity that comes with cost of living increases; make sure you analyze your options to make the right choice.
Create a plan for making withdrawals. You likely have several kinds of accounts that are taxed differently, such as a traditional IRA, a Roth, and a taxable account. Not only is each suitable for distinct investments, but they also should be viewed differently when it’s time to withdraw money in retirement. In a simplified example, you’d withdraw from the taxable account first, then the IRA, then the Roth, to let the account with the least tax liability grow the longest. However, every situation (and spending year) is different, so speak with a CPA and/or financial advisor to make wise choices and save money. You might also want to touch on the most efficient way to make charitable donations.
Plan for Medicare. Healthcare will likely be an increasing expense as you grow older. It’s crucial to understand Medicare basics and make a wise choice from the get-go. You must register for Medicare in the three months before your 65th birthday, the month of your birthday, or the three months following. Otherwise, you may be penalized with higher costs for your lifetime. Medicare is complicated. You can go to your state Medicare office or live chat 24/7 with a real person to make sure you enroll in a plan that will work for you.
Get a life. If you only have vague notions of what you might do in retirement, it’s time to start exploring your options. You’ll have almost 7 ½ hours of free time every day, and you’ll be a lot healthier and happier if you have a purpose. That might be spending time with the grandkids, volunteering for the local food bank, taking up painting and pickleball, or combining all four. Every retirement is unique, but it’s important to have strong social connections and the sense that you’re making the world a better place.
Consider where you live. Maybe downsizing to a cozier place with no stairs feels right. Some people never want to leave the home where they raised their kids. Others who have thick wallets want to buy a larger house where the family can gather after children have left and grandchildren arrive. Some will move to Florida for sunshine and no state income tax, while others find their dream home on the shore of a Great Lake. It’s a very personal decision, and you’ll have to think through your options.