For most of us, retirement is meant to be the ultimate reward — the sweet icing on the cake of life.
And if you’re within sniffing distance, let’s say 10 years, of what you hope will be a decadent respite, you know the excitement can be mixed with anxiety: Will my savings last throughout my retired years?
To help tip that emotional scale in favor of excitement, there are a few things you can do right now to ease your mind.
1. Envision Where You Want to Be
In order to prepare realistically for retirement, you’ll need to have a sense of how much it will cost you. And that will mean putting a price tag on your goals. We developed a retirement expense worksheet to help you inventory and itemize your likely expenses.
In addition to the necessities, leave yourself room to dream a little. Perhaps you want to see the world? Put it on the list. Even better, use our Define Your Retirement tool to visualize your retirement in just 15 minutes. It asks you to rank activities, identify your preferred living arrangements and provide information related to retirement age, needs and risk factors. With one click, you can send the results to your financial advisor, which can plant the seeds for a lively and realistic conversation about your expectations and retirement readiness.
2. Take Stock of Where You Are
Once you have a vision of what your retirement might look like, see how your current savings measure up to your dreams and ambitions.
By itself, the size of your nest egg says little about your preparedness for retirement. More telling is how much that current savings could provide in annual income in retirement. BlackRock’s CoRI tool can help you assess just that in two easy steps: Input your age (it starts at age 55) and then your total accumulated savings. CoRI will tell you how much that sum could provide for you each year in retirement (assuming retirement at age 65).
It also works in reverse: Input how much money you’d like to have each year in retirement, and CoRI will tell you how much you need to set aside to achieve it. This is often the “a-ha” moment for many savers.
3. Mind, and Close, the Gap
Perhaps you haven’t stashed enough money to fund your retirement vision just yet. Believe me, you’re not alone. The 2015 edition of BlackRock’s Investor Pulse Survey found that people nearing retirement (ages 55-64) have saved an average of $136,200. And while they claim to need $45,500 annually to meet their retirement expectations, that average savings figure of $136,200 would yield them just $9,150 annually. That’s a gap of over $36,000 each year of retirement.*
Of course, most Americans will receive a Social Security check as well. That certainly helps, but does not solve the problem. For an individual, the average annual Social Security payments amount to $16,000, which still leaves an income gap of $20,000 per year in retirement. For a dual-earner household, Social Security payments are providing an average of roughly $25,000 per year — leaving a retirement income gap in the area of $11,000 annually.
Whether your situation is more or (hopefully) less severe, there are essentially three broad options for closing the gap: save more, work longer and/or invest differently. In the past, knowing which lever to pull and with what impact was more or less guesswork. Today, working with an experienced financial advisor and the appropriate tools, you can home in on a much more precise plan of action.
We learned in our survey that most Americans (69%) value professional financial advice, even if they don’t always seek it. In fact, just 28% report using a financial advisor right now. It’s an interesting disconnect. I think that’s one more gap worth closing, particularly when it comes to the important task of planning for your hard-earned “just desserts.”
Rob Kron, Managing Director, is the head of Investment and Retirement Education for BlackRock’s U.S. Wealth Advisory group. He provides practical information on topics that are important to every saver and investor of every age.
* Retirement savings and desired income come from Global Investor Pulse Survey (July/August 2015) in median dollars for Americans ages 55-64. Estimated annual retirement income is based on the CoRI 2015 Retirement Index for a pre-retired 55-year-old. CoRI estimates are as of Sept. 21, 2015, and are subject to change over time. Retirement is assumed to begin at age 65. Expected income does not include other sources of income, such as Social Security.
This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change in the future. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in these materials does not constitute any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice. lackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by CircleBlack. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by CircleBlack.
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