Guessing About Your Retirement

There are many commercials on TV recently about the importance of determining what your “number” is and if your assets will survive as long as you do.

And for most of the people interviewed, it was a guess.

Many people are so afraid of finding out the truth that they intentionally ignore the question and just go about their daily lives. Kind of like the ostrich sticking its head in the sand. Sooner or later you will have to reckon with that.

Some clients I know were fortunate enough to have had an employer who offered a defined benefit plan, a type of retirement plan that rewarded the employee for his or her years of service and the highest earning years. It was very expensive for an employer to have one of these plans since it was 100% funded by the employer. Most municipal pensions and some state pensions are constructed this way. If you are a PA citizen you know about the need for the legislature to trim the current retirement plans of this type because the cost is exorbitant.

If you are a beneficiary of these types of plans, your retirement income from the plan should be about the same as 60% of your last year of employment. For some it is greater than 100%. Then what difference does it make what you have saved for retirement? Very little.

The problem is that most of us have worked under the defined contribution system, a 401k plan, (or a 403b for teachers and educators) where you and the employer will contribute a percentage of your income to the plan. The investment decision is yours. If you blow it, then your retirement income will suffer. You now have the responsibility to determine how much you will have at retirement. One good part of this type of plan is that you can take it in a lump sum and invest it more prudently with the help of an advisor.

More often than not, it is too late to try to recoup the poor investment choices you made when you are ready to retire. So knowing how much you will need will help guide your investment decisions: if you are underfunded, you might be willing to be more aggressive in your investments; if you are on track or overfunded, you might be able to let up on the gas a little.

Talk it over with an advisor who has your interests first and foremost. It could make a huge difference in your readiness or your inability to retire when you want.


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