Save More. Most people do not think about financial
matters from a long-term perspective so they do not estimate how much money
they will need for retirement, or if they do, they vastly underestimate how
much they will need. The experts shy away from hard and fast rules about what
you will need but aim to have between 60 and 70% of your income when you were
working. In Canada and the United States, we have government programs in place
for most people that aim to replace anywhere from 18 to 33% of that income. The
good news is that you don’t have to try to save enough to cover 70% of your
work income, you only have to save the difference between what the government income
and what you think you will need.
The bad news is we are living longer, you have to accept
that you will probably live longer than you expect. In many countries’ individuals
are expected to manage their own retirement funds. Many of us will plan for average
life expectancy, not realizing that this means that half of the people will
live longer. The big risk is that you will outlive savings.
Learn about various sources of retirement income.
Workers misunderstand what their primary sources of income will be in
retirement. In Canada and the US, there are government programs in place to
help. In Canada, we have the Canada Pension Plan, and the Old Age Security
income, in the US you have Social Security. In Canada the Old Age Security and Income Supplement is the most important source of income for many people,
in the US it is Social Security.
Educate yourself and learn how to manage your
retirement savings plan. Due to the growth of retirement savings plans,
individuals are now responsible for managing their investments. Most of us lack
basic financial knowledge but need to become experts about work benefits and
investing
Look for good advice. A significant portion of
retirees and pre-retirees do not seek the help of a "qualified
professional." Don’t’ be like most people who ask friends and family for
advice.
I have many friends who retired then went to work,
but they are in the minority. Don’t count on working. Plan early! Many of us
will retire before we expect to and before we are ready. Nearly four in ten
people retire due to poor health, caring for a family member, or job loss.
Deal with inflation. Inflation is a fact of life
that workers usually deal with through pay increases. After retirement, it is
up to people to manage their own assets or secure guaranteed income. Few
people have the skills to manage income to keep up with inflation.
Face facts about long-term care. Many people
underestimate their chances of needing long-term care. Relatively few people
either own long-term care insurance or can afford to self-insure a long-term
care situation.
Provide for a surviving spouse. Many married couples
fail to plan for the eventual death of one spouse before the other and the
resulting drop in income at the time of widowhood. Many more single women live
in poverty in old age.
Make your money last for a lifetime. People often
pass up opportunities to get a lifetime pension or annuity, failing to recognize
the difficulty of making money last for a lifetime. People say guaranteed
lifetime income is important, but in practice, they usually choose a lump sum.
