Are You Close To Meeting Your Retirement Plan Goals?

By
A A A

How's your game plan for retirement going? Are you on track to meet your goals?

Especially within five years of your planned retirement date, it is important to see how close you are to your vital mileposts.

"That gives you time to fine-tune strategies that need adjusting," said Tim Steffens, head of financial planning for wealth management firm Robert W. Baird. "And it gives you time to answer key questions."

Here are six key steps:

• Make or update your budget. A budget is the keystone to your planning. Seeing how much you spend and earn now helps you figure your likely expenses and income in retirement.

• Identify trimmable expenses. With a budget on-screen or printed, you can ID expenses that you can cut in retirement.

Those can include work clothes, commuting and housing. But remember to budget for likely increases in costs for health care and activities like travel.

• Check your financial plan. This is your investment strategy for building a nest egg that will provide your yearly retirement income target. The main engines for growth are investments in stocks, mutual funds, ETFs and bonds.

Suppose five years away from retirement you see that fixed-income funds are a larger portion of your portfolio than your plan calls for. It's time to rebalance into growth funds with future contributions.

Or at the five-year mark you may realize you won't retire for another, say, 10 years. That too would be a reason to rebalance, bulking up on growth.

• Check your company benefits. This will show you any traditional pension, deferred bonuses or compensation you may have coming. It will also clarify such things as whether and for how long you will receive company health insurance. And you'll learn whether you'll have any benefits you can cash in.

• Social Security. With the agency's web site calculator, get an estimate of your expected benefits.

You can start benefits at age 62. "But if you work beyond that, starting at 62 may not make sense financially," Steffens said. Full retirement age for most people now is 66 or 67. "Generally, for every year beyond that that you delay retirement, until age 70, your benefits rise 8%. On top of that you get inflation adjustments."

If you are healthy and have a long life expectancy, consider starting benefits as late as possible, he adds.

• Project retirement income. Start by estimating how large your nest egg will be in five years. You can use historical growth rates for each asset class to rough out a figure.

Given that estimated balance, how much income would it provide if you withdraw, say, 4% in your first year of retirement? (Four percent is a conservative figure that leaves enough room for your account to keep growing from investment returns.) Add to that expected income from other sources such as Social Security.

If the combined figure meets or tops the total projected expenses that your budget predicts, you're in good shape. If your income looks like it will fall short, it's time to consider steps like boosting your retirement contributions and delaying retirement.

Working longer can let you keep contributing to tax-deferred retirement accounts, Steffens says. It can also put off depleting those accounts. And it means your nest egg must last fewer years.

Retirement Calculators
Five easy-to-access calculators and their URLs

AARP
Charles Schwab
FINRA
John Hancock Mutual Funds
T. Rowe Price



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Mutual Funds

Referenced Stocks:

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Stocks

Referenced

Most Active by Volume

55,414,702
  • $15.38 ▼ 0.39%
38,503,210
  • $66.34 ▲ 2.26%
36,466,704
  • $8.36 ▼ 9.52%
35,253,294
  • $26.55 ▲ 1.34%
32,752,347
  • $6.55 ▲ 1.87%
31,778,001
  • $95.22 ▲ 0.19%
28,396,556
  • $51.49 ▼ 0.62%
23,800,987
  • $42.09 ▲ 0.97%
As of 7/11/2014, 04:03 PM