Still Time For Clients To Catch Up On Retirement Savings
Are you ready to retire? According to a recent Gallup poll, nearly half of all non-retired Americans are concerned they will not be financially comfortable when they retire. Understanding where you are, where you need to be and how to bridge the gap is critical for living the retirement you envision.
Not your parent's retirement plan
Historically, defined benefit pension plans played a prominent role in retirement income strategies. However, over the past 30 years, the paradigm has shifted and the burden of saving and investing for retirement now falls largely on individuals, rather than the companies that employ them.
To determine how close or far away you are from achieving your retirement goals, you first will need to define what you would like your retirement to look like and how much income you will require. To determine your retirement goals, consider the following:
What does retirement mean to me?
Your vision of retirement will determine the level of income you will require.
How much income will I need?
The level of income you will need may impact your retirement strategy.
How much time do I have until retirement?
When you retire, you stop contributing to your nest egg and begin drawing from it. Thus, the age at which you retire will affect the resources needed to fund your retirement, as well as the level of risk you take with your investments.
How much have I saved so far?
The more you have saved and the more income sources you have during retirement the less you may need to rely on investment income to meet your needs.
Bridging the retirement gap
If you are concerned about your finances in retirement, you may want to consider some of the following investment-related strategies for potentially optimizing your nest egg.
Maximize tax advantages: Contributing to a 401(k), traditional IRA, Roth IRA or other qualified plan may offer tax deductions, tax-deferred growth, employer matching and/or tax-free distributions. Tax-advantaged investments such as municipal bonds and annuities may boost after-tax returns in non-qualified accounts.
Use catch-up contributions: If you are age 50 or older, you may be allowed to make catch-up contributions to your 401(k) or IRA(s).
Contribute to taxable accounts: If you already have maximized your 401(k) or IRA contributions, you can contribute to taxable investment accounts and select tax-efficient investments.
Increase investment return potential: By selecting investments that offer higher potential returns, you may be able to realize higher growth rates in your portfolio. However, you may need to accept a higher level of risk. One approach might be to invest more aggressively in the equity portion of your portfolio while maintaining your usual allocations to fixed income and cash. Keep in mind that, as you approach retirement, it is generally advisable to scale back the risk in your portfolio.
You may also want to consider non-investment strategies such as delaying retirement, working part-time before you retire, working part-time during retirement or re-evaluating your retirement goals.
If you need help determining your retirement readiness, an experienced financial adviser can help identify your income needs, allocate your investment portfolio, monitor your progress and adjust your strategy as needed when life evolves or priorities change.
William R Conte is a wealth adviser in Joliet at Morgan Stanley Smith Barney LLC. He can be reached at [email protected] or 815-729-8040. His website is www.fa.morganstanley.com/william.conte.
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