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Avoiding a Detour on Your Road to Retirement

Planning advice from Johnson Financial Group

By Kelly L. Mould, J.D., CTFA, CWS®, CDFA®

Senior Vice President – Wealth Fiduciary Advisor, Johnson Financial Group

Partner Content

Retirement planning, like many things in life, is more of a marathon than a sprint. You don’t want to hit the wall because you need to catch up on savings; you want to maintain a steady pace toward the finish line. And you definitely don’t want to hit a detour.

Many individuals who have been comfortably planning and saving for their retirement today may find themselves approaching a potential detour as they navigate their way through changing financial circumstances brought on by the COVID-19 pandemic. 

Recent research shows that although high numbers of workers are confident overall that they will be able to save enough for a comfortable retirement and many have calculated how much they are likely to need, there were significant downward shifts in some categories in the months immediately after the pandemic struck.

Data from the 2020 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute (EBRI) January 6 through 21, showed that among workers age 25 and older,  nearly 70 percent are confident they will have enough to live comfortably, including 27 percent  who are very confident. Nearly half (48 percent) have tried to calculate how much money they will need and many are interested in financial wellness programs and setting priorities to help ensure they can reach their financial goals. 

Retirement planning, like many things in life, is more of a marathon than a sprint.

Once the pandemic struck, EBRI researchers went back into the field because they realized there likely would be an impact on the study’s findings. 

This supplemental data showed that although workers’ overall confidence in being able to achieve a comfortable retirement did not change significantly, there were decreases in specific areas. Feeling very confident in being able to handle basic expenses dropped from 33 percent in January to 24 percent in March; feeling very confident in covering medical expenses dropped from 22 percent to 17 percent. And nearly half said they expected their employment to change in the next six months, including 12 percent who said that change would be negative.

So, with potential detours in retirement planning ahead for many individuals, here are some suggestions on how to maintain a steady cadence and stay on track as you run your marathon to retirement.

Young woman with financial information and laptop

EARLY CAREER: GET A HEAD START

It’s clichéd but true: your primary retirement planning goal at this stage should be to set aside as much money as you can as early as you can. You’ll make the most of compounding interest that can grow over the years and potentially put you thousands of dollars ahead.

STEPS YOU CAN TAKE:
  • Sign up for a 401(k) plan if your employer offers one. If not, work with your bank or a financial advisor to set up an Individual Retirement Account (IRA) or other type of retirement savings plan. For 2021, you can contribute up to $19,500 to a 401(K), or $26,000 if you are 50 or older. You can contribute up to $6,000 to a Roth or traditional IRA or $7,000 if you are 50 or older.
  • Consider your risk tolerance and whether you are comfortable with a more aggressive investment approach. If you have many years until retirement, you may be willing to take greater risks that offer potential for greater returns. Be aware that such an investment approach may be more susceptible to market volatility and can take years to generate returns that would outpace a more traditional, balanced mix of fixed income and equity investments. A financial advisor can help guide you toward investments that match well with your goals and your appetite for risk.
  • Take advantage of the company match if your employer offers one. That is essentially free money — often 50 percent of what you contribute up to six percent of your salary. That’s an incredible amount of extra funding you can sock away — tax deferred — for the future. The average match in 2019 was 4.3 percent of salary.
  • Take it off the top. Opt in for automatic deductions so your contributions are automatically deducted, invested and allocated in the categories you select. Be sure to consider your ability to continue contributions through both up and down markets.

OTHER SAVVY STRATEGIES:
  • Pay down your debt. Credit card debt and lingering student loans reduce the amount of money you could save for your future, especially when you factor in interest. Work on reducing your debt even if it means setting a tight budget. 
  • Establish an emergency fund. You want to avoid tapping your retirement account if you leave or lose your job. Besides facing tax penalties, you’d lose the valuable base you’ve established for your future. Instead, work toward an emergency fund that would cover three to six months of expenses (one year if you’re in a specialized field). You then can maintain your long-term assets while still covering your short-term needs.
  • Make sure you have proper insurance coverage. An illness, accident or permanent disability can be catastrophic not only to your retirement planning but also to your ability to cover day-to-day living expenses. In addition to health, auto and life insurance, an insurance representative can help you determine other types of coverage such as umbrella or disability you might need to protect your future and that of your loved ones.
Mature couple reviewing finances together

MID-CAREER: STEP UP THE PACE

In this stage you’ll want to focus on maximizing your investments and firming up your retirement goals. If you haven’t already completed the early career guidelines, you’ll want to consult with an advisor to create a plan that acknowledges your current situation. That solid start and these suggestions can help you keep moving forward:

  • Add another savings vehicle. A 401(k) uses pre-tax dollars, meaning you’ll need to pay taxes on the money when you withdraw it later. By investing in a Roth IRA in addition to your 401(k), you’ll have a tax-diversified strategy designed to keep more money in your pocket later on.
  • Review your asset allocation. Being aggressive or conservative will have a big impact on earnings. Consider being more aggressive earlier on when you can afford the risks associated with growing your money, then gradually shift to a more conservative allocation to protect what you’ve earned from market volatility. Keep your portfolio management process simple and don’t lose track of 401(k) accounts from former employers. Your advisor can discuss your options for ways to manage or consolidate those funds.
  • Begin your estate planning. You’re building a net worth now that may not be adequately protected by a standard legal will. Financial professionals can help you obtain the financial and legal expertise you need to draft an estate plan that will distribute your assets according to your wishes. 
  • Refine and expand your financial plan. This is the time to begin defining your vision of how you want to spend your retirement. You then can review your assets and liabilities to see whether you are on track to make that vision a reality. A financial professional can help you as you make decisions and advise on additional steps such as refinancing a mortgage or consolidating loans should you need to move more quickly toward your financial goals. 
Retired couple high fiving

LATE-STAGE: YOU’RE NEARING THE FINISH LINE

It’s in the home stretch where your years of saving and planning come to fruition. But there are a few final steps to make sure you’re in the best position possible.

  • Perform an income analysis. Working with a financial advisor can help you see where you are, how much income you can expect and where it will come from. Your advisor also can help you determine the best time to tap your monthly Social Security benefits, when you should begin withdrawals from your retirement accounts and how your regular savings will be in play. Social Security benefit options can be reviewed with this calculator. IRS rules now require individuals to begin withdrawals from retirement accounts by April 1 of the year after reaching age 72.
  • Pay off all debt such as mortgages, auto loans and any other lines of credit as quickly as possible.
  • Make sure you have researched anticipated expenses, including medical insurance. If you are planning to retire before you are eligible for Medicare, you need to factor in the cost of private health insurance and any medical costs that won’t be covered. This is the single biggest expense in retirement for most people.
  • Plan for unanticipated expenses such as long-term care. The average cost of long-term care according to the U.S. Department of Health and Human Services is about $7,000 to $8,000 per month for a nursing home and begins at about $3,700 per month for assisted living. You can protect your nest egg by purchasing long-term care insurance, which can help cover the cost of care, but you should consult with an insurance professional to make sure you purchase a policy that is suitable for your needs and income. 
  • Assess and consolidate. A financial professional can help you simplify your portfolio management by helping you determine whether to consolidate accounts to coordinate and streamline your investments and minimize fees.  Your advisor also can evaluate your allocations to help ensure they are in sync with your personal financial circumstances, such as planned withdrawals and potential inheritances. 
  • Review your estate plans. Make sure your beneficiary designations are up to date and consider the benefits of appointing a corporate trustee to act on your behalf. An advisor can provide tailored information based on your individual circumstances and help you in your final strides across the finish line and into a comfortable retirement. 

If you don’t have an advisor, Johnson Financial Group is here to help you. 

For more information, please call Johnson Financial Group at 888.769.3796 or find us here. Johnson Financial Group offers comprehensive financial solutions in the areas of banking, wealth and insurance through Johnson Bank, Johnson Wealth Inc. and Johnson Insurance.

This publication is not a recommendation to pursue any particular investment strategy. Johnson Financial Group does not provide legal or tax advice. Please consult your financial, tax, and legal advisors with respect to your individual situation.

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