Last Updated: April 20, 2009
If you have lost your confidence in your ability to secure a comfortable retirement, don't feel alone.
According to the recent 2009 Employee Benefit Research Institute Retirement (EBRI) Confidence Survey, only 13 percent of workers are very confident about having enough money for a comfortable retirement. According to EBRI, workers are citing the economy, inflation, and the cost of living as the reasons why they have lost confidence over the past year.
In response, among workers who have lost their confidence in their ability to secure a comfortable retirement, workers say they have reduced their expenses, while others are changing the way they invest their money, working more hours or a second job, saving more money, and one in four workers are seeking advice from a financial professional.
If you are among those workers who are seeking advice from a financial professional, it's important to consider the following.
First, read FPA's Web site about choosing a planner, questions to ask a planner, why you should use a financial planner, and how to start your search for a planner.
FPA member, Paul Pomeroy, CFP®, an Investment Adviser Representative with LPL Financial, suggests that you work with a planner "who does a lot of planning as part of their practice, who will keep a plan up-to-date, and to whom the client is willing to be accountable."
In addition to working with a planner, experts suggest you do as other Americans are doing right now. "Working more, saving more and spending less are good ways to increase one's retirement nest egg," said Denise Appleby, founder of Retirementdictionary.com. "Taking some of the less obvious steps can help to provide more opportunities for building one's retirement nest egg." Here are her suggestions:
- Work with a budget: Working with a budget helps to identify areas in which expenses can be reduced and opportunities to increase savings. When designing a budget, treat your retirement savings as a recurring and unavoidable expense, as you would your rent/mortgage and utilities. However, don't overdo it. If saving for retirement is causing you to incur debt to cover your everyday expenses, you may be doing more harm than good to your financial profile, as the interest that you may have to repay on the debt incurred may outweigh the net benefits of adding to your retirement nest egg. Additionally, increased debt could affect your ability to repay and your credit score, which could result in higher interest rates for loans due to poor credit score, and/or inability to obtain loans.
- Consider non-traditional areas of income: If you own your home, consider whether a reverse mortgage could help to fill gaps in your retirement income. If you have a second home, or live in one that is large enough and has sufficient amenities, additional income can be provided through rental or a Bed & Breakfast for instance.
- Strategize on how to withdraw from retirement income sources: Consider how your distribution of retirement assets could affect your net income. For instance;
- Taking distributions from tax-deferred accounts will result in income tax being owed on the withdrawn amount and could increase the amount of income tax you pay on any Social Security income;
- Taking Social Security income later, rather than sooner, means larger income amounts. Use the Social Security Admisistration retirement calculator to determine how the age at
which you begin to receive Social Security income could affect your monthly and over all income; - Withdrawals from after-tax accounts and Roth accounts are nontaxable.
- Implement a debt reduction program: If you have outstanding debts, such as credit cards, car loans and other personal loans, design a program for reducing your debt. Work with your financial planner to design the best solution for your debt profile and look at solutions such as paying off high interest debt first. Call your creditors and negotiate reduced interest rates and — if necessary — reduce or write off of a portion of your outstanding balance. Most creditors would rather have you pay off a lower balance and/or repay at a lower interest rate, than to not repay your loan at all. These negotiations require no special expertise and doing it yourself would avoid incurring the fees associated with hiring a debt management company to do it for you. Paying down (or paying off) your debt will leave more disposable funds to add to your retirement nest egg. Learn more about money-saving tips.
- Consider health care costs: A mistake that is often made with retirement planning is to
overlook expenses outside of everyday living needs, such as health care. As one gets older, the likelihood that one will need medical care increases. There are many horror stories of individuals losing their homes and savings to the cost of covering medical expenses. These costs can be mitigated with health insurance, Medicare and long-term care insurance. Signing up for Medicare at age 65 can help to reduce associated costs, as the longer one waits past age 65 to sign up, the more likely it will cost more to sign up. Long-term care insurance is not for everyone; it is often used by individuals who may need long-term care and want to protect their retirement savings from having to use it to cover medical expenses. Individuals should consult with a financial planner before deciding whether to obtain long-term care insurance.
