“You don’t need to panic, but you are in trouble if you don’t have a comprehensive retirement plan,” says Jonathan Guyton, a certified financial planner with Cornerstone Wealth Advisors in Edina, Minnesota.
Here’s a four-step action plan to help point you in the right direction:
- Don’t stop working prematurely. Determine how much you need to withdraw from your assets. If your needs are higher than 6% of your assets, you’re not ready. You’ll need to work a bit longer, says Guyton, to put more into your 401(k), as well as social security. In the best case scenario, you would need to only withdraw 4% to 5% of your assets a year.
- Delay social security benefits. Because social security can sometimes be half of someone’s retirement income, missteps can be costly. Warns Guyton, “Don’t start taking social security too early. Every year you wait, your benefit goes up 8%.”
- Diversify. The best weapon for protecting your investments is diversity. Certain investments do well when others perform poorly. For example, when the economy tanks, stocks typically suffer, and high-yield bonds do well. “You want your investments so that everything is not moving in the same direction. Some people might think government bonds are boring, but during the financial meltdown in 2008 they were a good investment,” says Guyton.
- Play catch-up. If you’re 50 and over and fell behind in your retirement savings, “catch-up provisions” allow you to put an extra $5,500 in your retirement savings above the limit of $17,500.
Stay tuned for the second part of this companion series on retirement curveballs. For even more on this topic, read Watch out for Retirement Curveballs, in the July/August issue of Black Enterprise.