None of us can see what the future holds, but you have to make certain assumptions if you’re going to create a strategy for building the resources you’ll need for a comfortable retirement.
What happens when those assumptions prove unrealistic?
Unfortunately, many people are wrestling with this very problem.
Specifically, they plan to work until a certain age — but they leave the work force earlier.
This can have a big effect on a variety of other retirement income factors, such as the amount of money they need to put away each year while they’re still working and the age at which they should start collecting Social Security and begin tapping into their IRA or 401(k).
Just how big a problem is this? Consider the following statistics from the Employee Benefit Research Institute’s 2009 Retirement Confidence Survey:
• 47 percent of retirees left the work force earlier than planned. Of that total, 42 percent did so because of health problems or disability, 34 percent because of downsizing or closure and 18 percent to care for a spouse or family member.
The bottom line: Even if you think you’re going to work until, say, 65, you may be forced to quit at 62 or even younger.
And during those years you won’t be working, you’re not just losing out on earned income, you’re also not contributing to your 401(k) or other employer-sponsored retirement plan, and you might lose your ability to contribute to your IRA.
At the same time, your retirement lifestyle expenses have begun earlier than you anticipated and many people find that these costs aren’t lower than the expenses they incurred while working.
What can you do to help avoid coming up short during your retirement years?
For one thing, don’t spend a lot of time focusing on those things you can’t control, such as downsizing or an unexpected health crisis or disability.
Instead, concentrate on those factors over which you have power.
• Maximize your contributions to your 401(k) and IRA.
• Invest for growth. Include growth-oriented investments, such as stocks, in your balanced portfolio.
While it’s true that growth vehicles will fluctuate in value, you can help reduce the effects of volatility by buying quality investments and holding them long term.
• Create alternative plans. While you may want to retire at a certain age, you’ll also want to come up with alternative scenarios based on different ages.
You can’t predict the future, but you can at least help yourself prepare for those twists of fate that await.
Ross Hage is a financial adviser with Edward Jones. For more information, call him at (928) 468-2281.