U.S. Money Reserve

Oct 14, 2021

6 min read

Thinking Ahead: Four Tasks to Do Now for Retirement Savings and Income Planning

by Scott K. Schmidt, Chief Financial Officer, U.S. Money Reserve

From one year to the next, retirement planning hasn’t changed much, right? Not quite. Here’s what you need to do now to ensure that you have a long, healthy, and happy retirement in the future.

You work, you save, you retire. That’s how retirement and income planning functions, and that’s the way it’s always worked. Right?

While the rough outline of the best retirement practices might be the same as it was a few years ago, today’s workers are in for some surprises when it comes to income planning and retirement. Despite outdated perceptions, some of the things you should be doing now to prepare for a comfortable retirement have changed. Here’s what you need to do now for your retirement savings and income planning.

First, Understand How the Retirement and Income Game Has Changed Over the Last Few Years

While the underlying mechanics are essentially the same, the truth is that some of the fundamental dynamics that impact the quality of your retirement have significantly shifted over the last few years. It’s vital to understand those changes so that you can accurately plan. These changes mean you may need more money on hand or more income planning to achieve a higher retirement savings goal.

Here are some key ways in which the game has changed.

  • Life Expectancy is Longer.

Since the 1950s, life expectancy has increased, meaning that people are living and working much longer than they used to. Today, most Americans are expected to live well into their late 70s and even early 80s. Reaching 90 or even 100 years of age is no longer a rarity, thanks in a large part to modern medicine, better healthcare, and increased availability of nutritious food. People are also starting to take care of their bodies at younger ages, exercising regularly and eating a good diet of whole grains, fruits, vegetables, and protein, which means that many people are staying a lot healthier for a whole lot longer.

According to data from macrotrends.net, the average life expectancy for most people was just 68 years in the 1950s. Today the same data shows that people should expect to live to at least 79 years old.

  • There Are Fewer Pension Funds.

Pensions are going the way of the dinosaurs. Unless you work for the government, there is no such thing as a pension plan anymore. The truth is that corporations killed these plans back in the late 1970s because they were getting too expensive to administer. Congress passed the Revenue Act of 1978, which made way for 401(k)s and catapulted us into the era we’re in today. That means for the most part, we are all in charge of our own retirement fortunes and income planning. Gone are the days of having a nice comfortable retirement after putting in time at one company.

There are positive and negative aspects to this development. For one, it means each of us can be in charge of our future retirement. That’s an empowering position to be in. At the same time, it means we have to think ahead and plan for whatever the future may bring more than people did 50+ years ago. Some people are great at this, while others truly struggle with it. In addition, we’re no longer guaranteed a set pay for our golden years — and our retirement funds are subject to the whims of the larger market and economy. Like anything in life, this risk is something to be carefully considered as we all think about the future of our retirement.

  • There Are a Wide Variety of Retirement Options Today.

One additional factor affecting retirement today is that there is an increasingly dizzying array of retirement options. Should you put your money into alternative avenues like real estate, cryptocurrency, or precious metals? What about private equity, hedge funds, or art and antiques? Wading through your options can seem daunting. How do you know which are right for you?

Second, Understand Where You’re Starting From.

Once you have a good handle on just how the retirement savings game has changed, it’s time to take a few preliminary steps to ensure that you are well set up for your future golden years. First, it’s important to take stock of exactly where you are financially at this moment. It’s also important to consider your age.

That means considering how much savings you have, what your debt obligations are, and what you may need to plan for based on your age and how much longer you might be working. Understanding your current age and how it affects your time horizon for retirement is crucial before tackling your retirement savings and income planning. For each time horizon (say 10, 20, or 30 years out), you need to consider a number of issues — but they’re all relatively different based on just how much time you have left.

For example, most experts say that younger people who are starting to plan for retirement in their early 20s can take on more risk than those who are approaching 65. That’s because 20-year-olds have a longer time span, which can help smooth out any shifts or sudden drops the market makes. Those who are closer to retirement could benefit from taking on less risk in their retirement and income portfolio since they have a shorter time horizon. According to Investopedia, the shorter your time to retirement, the more focused you should be on income and the preservation of capital — that is, keeping what you’ve worked so hard to get.

Once you’ve got a good idea of where you are, you can start working on where you want to go as you approach the golden years.

Third, Figure Out What You Want Your Retirement to Look Like.

We all have different perspectives on just what we want our retirement years to look like. Some people want to move to Florida or Arizona (as proven by the tremendous number of retirees that populate both states) and live near the water or desert in a home big enough to welcome family and friends throughout the year. Others want to downsize and find something a bit cozier in a more remote area that offers plenty of outdoor space and various opportunities for travel. Whatever your retirement style, it’s vital to figure out what the future might look like for you. Do you plan to support your kids? Do you have any major health concerns? What do you want to do in retirement?

All of these are important questions to ask of yourself and your loved ones when you’re planning for retirement. Many people think that they’ll only spend around 70 to 80% of what they’ve spent pre-retirement. The truth is, for many people, that’s an underestimate since they get to retirement and splurge on all the things they have wanted but not purchased earlier in life. In addition, it’s important to understand that the cost of living has been increasing steadily — which means you’ll likely need more cash than you think.

Finally, Start Saving for Retirement and Get An Income Plan in Place.

Once you’ve figured out what you want your retirement to look like, it’s time to start thinking about the right strategy for saving. Again, this will be primarily determined by your age, how much you have already saved for retirement, and how you hope to spend your retirement. The rule of compounding applies here — so the more time you have to save, the better off you’ll be. To help you get on the right path to retirement, it pays to set up automatic savings, maximize your employer’s 401(k) match, and consider opening an alternative account like a Roth or a regular IRA. These tools can help you get on the right path for retirement and set a good income plan in place for those golden years.

The Bottom Line on What You Should Do Now for Retirement and Income Planning

All of this comes down to one core principle: Start saving now. The sooner you get a good plan in place for your retirement, the better off you’ll be. You’ll have more time to absorb any fluctuations in the market, you’ll have a better handle on just what you want your retirement to look like, and you’ll be better prepared for whatever the future holds for you and your loved ones. The sooner you take your retirement and income planning into your own hands, the better.