|By Mark Miller|
|Penton Business Media|
Just a couple recent data points:
--Working American households may experience a potential income drop of 28 percent in retirement, and nearly four-in-ten (38 percent) retiree households won't have sufficient income to cover their monthly expenses, according to a Fidelity Investments survey of more than 2,800 adults.
--Americans' confidence that they'll be able to retire comfortably is at historically low levels, due to worries about jobs and debt, according to the 2012
haven't tried to calculate how much money they will need for retirement.
--Even among the affluent, 66 percent of women and 54 percent of men are worried that they won't have sufficient assets to last through their lifetime, according to the most recent
You may have clients who share these worries. Yet there are ways to change the retirement math, even for people close to retirement. This is true especially for those who may not be on track for retirement success but are “within striking distance,” as
If you have clients who fit that description, consider the following ways to get them on track. These aren't easy, magic-bullet solutions, but basic blocking-and-tackling ideas that can have very dramatic impact on retirement success.
1: Scrub the Expense Assumptions
Many financial services companies and planners adhere to the rule of thumb that retirees should plan to replace 80 percent of working income in retirement. Many baby boomers will fall short of that. For instance,
Just as important, the 80 percent rule-of-thumb is no more than a rough estimate. For example, it doesn’t take into account unforeseen spending needs such as higher health care expenses or a long-term care insurance policy. At the same time, the rule doesn’t recognize that some expenses might shrink or disappear entirely, such as commuting or maintaining a business wardrobe.
It also sidesteps some key questions people should be asking themselves in tough economic times: What is the lifestyle I want? How much will I need to spend on basics? What can I afford to spend?
A recent EBRI analysis concluded that the median retired household spends about 80 percent of what working households spend. But that's just the median – many spent more or less.
Just as important, EBRI found that overall spending in retirement falls with age -- which means that a retiree won't need a constant replacement rate of pre-retirement income.
A better approach is to create a careful zero-based budget for projected expenditures over time based on the client's lifestyle expectations, and discuss alternatives that could reduce costs in key areas, such as housing (see retirement math suggestion No. 2, below).
2: Tap Home Equity
Real estate is a key asset for most older Americans – even in the wake of the housing crash. Eighty percent of Americans over age 65 are homeowners, according to the Joint Center
for Housing Studies at