Saving for retirement isn’t just about building a nest egg before your golden years arrive. It’s about planning ahead, growing your assets wisely, and knowing how to withdraw once you leave the workforce. But with nearly a third of certified financial planners reporting that their clients fear running out of money, it’s clear that many savers aren’t confident in their approach.
As such, you may find yourself asking, “How do I know which financial advisor is best for me – and will they help me take steps to plan for retirement?” If this is you, the best financial advisor in Wilmington, Delaware Clariti Wealth Advisors is here to help.
3 Key Roadblocks to Retiring Comfortably
Currently, Social Security checks only average around $1,500 per month, which comes out to around $18,000 per year. That’s not a lot to live on – especially if that’s your only income. But if you want to save for retirement properly, you first need to know which pain points to avoid.
1. Inflation
Inflation measures the rate at which the cost of goods and services rises over time. As prices rise, the purchasing power of the dollar falls – meaning that in ten years, you’ll spend more money to buy the same items. To combat such erosion, savers are often encouraged to generate investment returns, rather than stashing cash in a low-interest savings account.
2. Overspending
Overspending both before and after retirement drastically cuts into the longevity of your wealth. The more you tuck away now, the more you’ll have to withdraw from later – but you don’t want to save so much you can’t enjoy your youth! And once you retire, how much you spend early on impacts the future returns you need to live comfortably.
3. Sequence of Return Risk
Your portfolio balance is affected not just by how much you withdraw, but how and when the market fluctuates. This leads some savers to worry about sequence of return risk, which occurs when ongoing withdrawals plus a market downturn eats into your portfolio’s longevity.
6 Steps to Take if You’re Worried About Running Out of Money in Retirement
If you’re worried about your future after you exit the workforce, you’re not alone! Fortunately, you can take steps to ensure your financial security.
- Work with a Certified Financial Planner
Having a certified financial planner to aid you in planning and saving can help you make the right moves. Whether you’re worried about finding your pain points, under or over-investing, or properly diversifying your assets, a financial advisor can walk you through the process. Not to mention, a good financial advisor is there to guide you through the storm and provide transparency to you when times get tough!
- Build Your Budget(s)
Building a budget can help you identify where your money comes in and flows out. More than that, you can identify your essential and nonessential expenses, do away with frivolous purchases, and set yourself up to save more.
But don’t just budget for your near-term future. Identifying your potential needs in retirement and planning ten, twenty, or forty years in advance can set you up for long-term success. Even if you don’t know your exact financial situation ahead of time, designing a framework for retirement now can help you prioritize your investments.
- Save (and Invest) More When You Can
The more wealth you accumulate before retirement, the less likely you are to run out of funds.
If you’re not topping off your retirement accounts, consider shuffling extra funds into meeting your annual maximums. Not only will you grow your wealth, but by investing in a 401k or IRA, you may nab a tax break, too.
But it’s not just about retirement accounts. Once you’ve met your annual limit, consider opening a general investment account to maximize returns elsewhere. While the tax benefits are more limited, you can still take advantage of market growth and compound interest.
- Invest for Growth – But Reduce Your Risk as You Age
Thanks to modern medicine, it’s not uncommon to live to see your 75th, 85th, or even 95th birthday. In other words, if you retire at 65, you may live another thirty years!
For that reason, it’s crucial that young investors build well-diversified portfolios to generate lasting wealth. But as you age, you’ll also want to reduce the risk of losing everything.
To that end, many certified financial planners recommend investing in more aggressive growth assets, such as equity investments, while you’re young. Then, when you reach your 50s and 60s, you may want to move your funds into investments like high quality bonds.
- Build Multiple Streams of Income
If you qualify for Social Security, you can start withdrawing your benefits as early as 62 years old. But Social Security won’t replace all your income, which leaves you to fill the gap.
One way to refrain from draining your savings is to build streams of passive income. Whether that’s earning a work-related pension, investing in dividend-paying stocks or high quality bonds, or buying rental properties, designing a retirement plan that includes regular, passive income can protect your principal longer.
- Don’t Forget Cash – or Your Safety Net!
When you diversify your funds, many investors look at items like stocks, bonds, precious metals, and even commodities.You’ll also want a safety net for emergencies. For instance, if you incur unexpected expenses, you don’t want to rely on your core retirement funds to cover them. Having a sufficient amount of cash in an emergency fund can provide for those needs.
Get Help from the trusted advisors at Clariti
Whether you’re worried about running out of money in retirement or just want a check-up on your financial health, Clariti’s Certified Financial Planners are here to serve you!
As fee-only fiduciaries, we have a legal and professional obligation to put your interests before ours – always. That translates into everything we do, from our investment strategies to our fees.
With Clariti, you always know how much you’re paying and what you’re getting for the price. Transparency, honesty, and integrity are the core of our strong, long-lasting client relationships. Come see for yourself the difference that a trusted advisor can make in your retirement plan!
