OCEAN CITY – Your ability to enjoy the lifestyle you want in your later years depends, to a large extent, on getting past the single biggest obstacle to a successful retirement: not having a strategy to get you there. Retirement can seem distant and hard to grasp when you’re still in your peak earning years.
But Vincent Grogan, Director of Marketing with the Retirement Group at Merrill Lynch, has seen the immediate benefits of developing even a general idea of where you’re headed and how you’ll get there. “Over the past few years, Merrill Lynch’s retirement studies have consistently found that those who have a strategy in place feel more prepared,” he says.
When retirement is 10 or more years away, you may not be thinking yet about your vision for retirement. But the sooner you take the first step toward understanding what that vision might be and preparing for it financially, the more likely it is that you’ll be ready when the time arrives. You’ll also have a better opportunity to recover and adjust if life events throw you a curve. Even if you’ve already been setting aside funds in an employer-sponsored plan or IRA, it’s critical to take a broader view of the role your personal saving plays in preparing for retirement.
To start developing a long-term strategy, get your financial advisor involved as soon as possible. Have a conversation about the kind of lifestyle you envision during retirement. What ambitions do you harbor? What role does work play in your vision? What about philanthropy? What impact will it have, and how will it involve your loved ones?
Even though some of your answers may change as you draw nearer to retirement, the exercise remains valuable; it enables you to see where the decisions you make today will influence your future. Keep in mind, of course, that your answers will change as you near retirement, and your strategy can evolve as your needs do.
As you consider the lifestyle you envision for yourself in retirement, think about the kind of income you will need in order to achieve and maintain it. Grogan suggests an interesting exercise to help you think about what your expenses will be in retirement. Lay out for yourself a theoretical retirement budget.
Now that you’ve worked out what you’d like to do in retirement and have a general idea of how much it’s likely to cost, you need to assess whether you’re on track toward having enough savings to meet your anticipated retirement income needs. You’ll want to discuss with your Financial Advisor whether or not your current savings and investment strategies will get you where you want to be as retirement approaches.
Once you’ve got a basic structure of a retirement strategy in place, you may well decide that you need to raise your level of personal saving. If you’re age 50 or older, you can begin by taking advantage of catch-up provisions that allow additional IRA contributions of $1,000 per year and, for employer-sponsored plans, an annual catch-up contribution of up to $5,000 for 2008, likely increasing in future years.
However, it’s not just how much you save that influences your ultimate retirement outcome; it’s how you invest those savings. You may want to talk with your financial advisor about how to invest your retirement savings more aggressively, within your risk tolerance. No strategy should be set in stone. Track your progress assiduously and be willing to make adjustments as market conditions, and life situations, change. Having a strategy doesn’t mean you can’t change it — but you can’t change it if you don’t have one.
(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)