Answers to the 6 Retirement Questions We Hear Most Often
June 1, 2020
By Tom Limoges & Dan DeMarest
Security National Wealth Management
When it comes to retirement planning, there are no bad questions. But, there are a few popular ones. So we’ve rounded up the most common retirement questions that customers ask our financial advisors, and provided our best general answer to each one below.
Obviously, we have to lead with a pretty big disclaimer: We at Security National Wealth Management believe in personal service and that every retirement situation is unique — whether you live in Iowa, Nebraska or South Dakota. However, there are some basics we can cover here that will help bolster your future discussions with your financial planner.
Q: When can I afford to retire?
A: This answer has more to do with how old you are now than how old you want to be when you retire. The only sure answer is this: the sooner you begin saving for retirement, the more flexibility you will have in terms of when you decide to stop working.
To get a general idea of when you can afford to retire, use our retirement savings calculator below:
RETIREMENT SAVINGS CALCULATOR
You will have
Social Security (if any) would be in addition to the estimated numbers above.
Most people tend to work (and contribute to their retirement plan) until the minimum age of 59½, when most tax penalties on withdrawals expire. There are exceptions and caveats to this, of course, and your financial planner can provide you with your options.
Q: What percentage of my salary should I put away for retirement?
A: Most financial advisors recommend a savings rate of 10 to 15 percent of annual salary, but the answer to this question varies.
Factors to consider include:
- Current Age
- Retirement Age
- Current Savings
- Investment Allocation (type)
- Style of Living in Retirement (or, the percentage of income that will need to be replaced)
The last factor is probably the most difficult to answer, since everyone’s definition of retirement varies. So — what style of living do you plan to have in retirement? With this information in hand, our advisors will run individual projections to determine if a participant is on track and if not, what changes should be considered. This is a service that we provide to all of our retirement plan customers. One thing for sure — do it now and do not wait. For most of us, ignoring the answer to whether or not we are prepared for retirement does not magically make it happen.
Q: What if I'm not on track for retirement?
A: Do not panic. There are several options to consider:
1) Take advantage of employer sponsored plans.
If your company offers a match, make sure you are contributing enough to receive the full match from the company.
2) Increase your savings rate each year by 1% or more if you can.
An easy way to do this is to increase your savings when you get a raise or pay off an existing bill.
3) Make sure you are invested in an appropriate mix of stocks and bonds.
Once you have a plan for investing, stay invested. Trying to time the market is extremely hard to do. Many of the worst days in the market are followed by some of the best days.
4) Consider working longer, retiring later or working part time in retirement.
The earlier you start planning and making adjustments, the less likely you will have to resort to work longer. Assuming a consistent rate of return of 6 percent over time, the benefits of starting to save more, earlier, are compelling.
Q: When volatility rises in the markets, should I consider changing my investments?
A: The short answer is no. Our view on investment allocation does not change based on market performance.
We have written before about how worrying about the markets too much can negatively impact the average fund investor. So, rather than focus on recent performance, our team evaluates each individual client’s situation to suggest the appropriate allocation.
Q: Should I invest conservatively or aggressively?
A: 401(k) plans offer a variety of investment options, ranging from low risk to aggressive, and everyone's risk tolerance is different. That's why we work with all clients to match investment options with their unique situation and risk tolerance.
Lately, we are seeing two popular investment options — Target Retirement Portfolios and Managed Investment Portfolios.
- Target Retirement Portfolios allow the participant to select the portfolio closest to their particular retirement year (example Target 2040) and the investment mix (conservative to aggressive) automatically adjusts as the participant gets closer to retirement.
- Managed Portfolios are similar, but maintain a particular risk allocation over time.
Both options are diversified, professionally managed and are becoming increasing popular among retirement savers. According to projections by Vanguard, over three quarters of plan participants are expected to use professionally managed products by 2022.
Q: Should I invest in a Roth or Traditional IRA?
A: Sometimes both, because there are several important differences between Roth and Traditional plans that make having one of each a great 1-2 punch for retirement expenses. For others, choosing one or the other makes more sense. And finally, there’s also an option to convert a traditional plan into a Roth IRA.
Where a Roth is funded with your post-tax dollars and grows tax-free later (you'll be able to withdraw your savings tax free), a traditional IRA offers pre-tax savings now (and tax-deferred growth later). This is the basic distinction between the two, but you can always read our colleague Colin O’Shea’s article about choosing between a Roth or traditional IRA to learn more.
Ultimately, your decision to fund a Roth or traditional IRA (or both) is a personal one, and the choice will depend on your current financial needs as well as those in retirement. A financial advisor can help you make the most educated decision.
Security National Wealth Management offers all of our clients the opportunity to meet individually with one of our advisors. This service allows us to create a savings plan individually tailored to meet your retirement goals. If you have not taken advantage of this opportunity, please reach out to one of our advisors today.