The first wave of America's 76 million baby boomers will retire in the next 10 years. Since most retirees today are healthier and more active than their parents, they are looking forward to living longer and spending more time with their grandchildren, doing hobbies, or even trying new jobs.
A well-thought-out plan for retirement gives investors more confidence when they reach retirement age. Planning ahead helps people who are getting close to retirement get ready for when they stop getting paychecks from their jobs and have to start making money from their assets to pay for their retirement costs.
Planning for and managing your income in retirement may not sound like a lot of fun, but it is the best way to feel sure about your future. Think about what comes next.
- Keep assets and make them grow. Some retirees are too careful because they are afraid of a down market, so they sell almost all of their stocks. Even though retirees should take care of their money, they should also know that investing in the markets can help them grow their money. In fact, a portfolio with a good mix of stocks, bonds, and cash may be the best way to do well in the long run. The key is to find a mix of assets that is right for your age and brings in enough money to help cover the costs of withdrawals and inflation over time.
- Make things easier to stay on track. A 2004 Fidelity study found that people who are close to retirement expect to have an average of nine sources of income, such as Social Security, multiple 401(k)s, annuities, and personal savings. Most of the time, these assets are kept in different accounts at different banks. This makes it hard to come up with and keep up with a complete strategy for investing. For example, mutual funds from different companies may hold similar investments, which could make your portfolio riskier by giving you more exposure to volatile markets or sectors.
- Figure out how long you will be retired. Since there is no set length of time for retirement, this first step can be especially hard. Many of our customers are surprised to find out that they are likely to live just as long in retirement as they did when they were working. A 2003 Fidelity study said that a 65-year-old couple who retires today should plan to have enough money to last at least 20 or 30 more years. When figuring out how long your money needs to last, you should think about how much you'll likely spend in retirement and the fact that you might live longer than you think, maybe even into your 90s.
To avoid this, people who are five to seven years away from retirement may want to think about putting all of their 401(k)s and other retirement accounts in one place or finding a tool that lets them see their whole financial picture at a glance.
To make a good plan for retirement, you need to be very focused and do a lot of detailed math. This can force couples who are getting close to retirement to think about hard things for the first time. Investors are lucky that there are many ways to help them plan for their retirement. The key, though, is to plan for the future. This gives you financial confidence so you can enjoy the retirement you've worked so hard for.
Fidelity Investments' top vice president is Cynthia Egan.
