Retirement is, to most people, something that seems very far in the future. As such, people will often put it out of their minds until much later in life and then scramble to try and get retirement-ready.
Unfortunately, though, retiring comfortably takes planning from an early age, ideally the age when you first start working full-time at your chosen career. If you’re getting close to retirement age and haven’t done the proper planning, there’s a good chance you won’t be ready. And, fortunately, you can do some backpedaling to make up for your lack of planning…but only if you realize you’re not ready for retirement quite yet.
Below, we’ll detail some classic warning signs that you’re not ready for retirement, and if you find that they apply to you, you’ll know that you need to step up your planning and saving to get ready.
Sign #1: You Don’t Have a Plan in Place
A lot of people think they’re doing well if they just sock away a little bit of money each month toward their retirement. In truth, though, really being ready for retirement entails having a detailed financial plan. When you’re truly ready to retire, you’ll have a clear estimate of what your post-retirement expenses will be and a plan in place to ensure you have enough coming in each month to meet those expenses and then some. If you don’t have that kind of plan, it’s time to start making one! You can do your calculations yourself, or, even better yet, work with a financial planner to really get something solid and reliable set into place.
Sign #2: You Still Have Dependents
People tend to think that when a person should retire is based simply on that person’s age. In reality, just because you reach a certain age doesn’t necessarily mean you’re ready for retirement. If, for example, you’re still caring for dependents, such as young children or elderly parents or loved ones, you’re probably not ready to retire, no matter what your age. Dependents are typically a big expense and often require people to work longer than expected or, at the very least, to make additional plans and/or sacrifices to accommodate those dependents. Thus, if you have dependents in your life, you’ll need to decide now how you will take care of them after retirement.
Sign #3: You’re Still Struggling
When you retire, you should be at a good place, financially speaking. If you’re still not able to meet the demands of your monthly bills each month, then, you’re definitely not ready to retire. Most people live on less in retirement than they did when they were working, and if you can’t live on your income now, living on your retirement income is going to be a real stretch, if not an impossibility.
As you can see, retirement isn’t just something that happens. It’s something that you have to plan for. Thus, don’t do it until you’re truly ready, and if you’re nearing the standard retirement age, start planning appropriately now. Even if you’re not, planning early will only help you in the long run.
If you are in the process of retiring or considering it, you may be wondering how much money to keep in your stock investment at time of retirement. Many retirees are thinking about this issue since the allocation and diversity of assets is a primary component of any retirement plan. But how do you know what mix of stocks and what mix of bonds will work? Where is the balance to secure your nest egg? There are three main ways that this is dealt with by investors, arriving at a practical combination of stocks and bonds to secure your retirement funds.
The first technique used by financial investors is to employ the static asset distribution approach. How does this work? You decide on a combination of stocks and bonds that offer a rational exchange as it relates to both the risk and the return. This would fall in a sensible range of 60 percent in bonds and 40 percent in stocks or the reverse, which would be 40 percent in bonds and 60 percent in stocks. After this, the retiree would maintain the combination throughout the period of retirement; only occasionally selling a few stocks here and there, but trying to balance the proceeds. Having a balanced retirement fund with 60 percent of the assets in stocks and 40 percent in bonds is the model pattern of static asset distribution.
The second technique known to and used by financial investors is the glide path. What is this? It involves the start of acquiring half of our nest egg primarily in stocks and then steadily shifting to bonds when you get to your early 70s with an anticipation of hitting a combination later of 70 percent bonds and 30 percent in stocks. At this time, you wouldn’t move around the combination until you get to retirement.
Target Date Approach
Most financial investors take this target date approach so that less risk can be assumed as retirees get older. However, it is important to note that not all of these kinds of funds result in a similar percentage in stocks or in bonds. It all depends on how conservative you are up until your retirement.
The third method is a spin off to the glide path and it is called rising equity. This takes the opposite approach, which is more risky. Rather than reduce your exposure to stock purchase, you would increase the exposure, possibly beginning with 30 percent in stocks and a steady boost until you get to 60 percent in bonds. So you would start out with a conservative amount and then increase as you get closer to retirement. Doing it this way will secure your savings and reduce any risk of having to access your retirement savings account.
While these techniques all have their own merits, it is important to note that you should keep your stock exposure to no more than 30 percent, even as you grow older so that you don’t live longer than your savings.