How confident are you about retiring?
Are you thinking about retiring? Considering the stock market is very close to bear market territory, should you be?
That depends, of course, on how well you've prepared — that is, whether you've figured out how to pay for your financial future. With inflation rising dramatically (8% year over year, according to the most recent Consumer Price Index report) after years of calm, savings and investing become even more important to understand and manage.
The task at hand is reaching a level of financial confidence before leaping into retirement — if you have a choice, of course. It turns out that people actually retire earlier than planned. Nearly 1 out of 2 retirees retired earlier than they expected, according to the recently released 32nd annual Retirement Confidence Survey (tinyurl.com/2e28wxw3) conducted by the Employee Benefit Research Institute and Greenwald Research. The 2022 survey of 2,677 Americans (1,545 workers aged 25 or older and 1,132 retirees) was conducted online Jan. 4 through Jan. 26, 2022.
While the median expected age for retirement is 65, according to the survey, retiring earlier (age 62) is the reality. Four in 10 retirees retired early because they could afford to do so. Two out of 3 retired early because of something outside of their control, such as a health problem or disability, company downsizing or reorganizations, or caregiving for a loved one.
If you have control of when you retire, how will you reach a confidence level in which you feel that you are ready? Let's look at a few points: the effect of a possible transition into retirement, dealing with the unexpected, homework and getting help.
Transition: How realistic is your vision for timing your transition from work into retirement? Many workers (44%) saw themselves making a gradual transition into retirement. However, most retirees (73%) just stopped working on a particular day without a gradual transition into retirement.
Addressing the unexpected: What happens if unexpected events intervene? Who could have anticipated COVID or the Russian invasion of Ukraine or the quickly rising cost of living?
It's interesting to note that most surveyed retirees and workers (about 70%) did not lose confidence in their retirement plans due to the pandemic. Would they be concerned in today's market environment? That would depend, again, on preparation.
Preparation: As you might expect, retirees who are confident about their futures did their homework (tinyurl.com/unfdvcfm).
What was most important? Knowing the sources of their retirement income and how much they needed to live comfortably in retirement. A large number of retirees (68%) estimated how much income was needed each month, 52% thought about how much to withdraw from funds in retirement and 49% calculated how much money is needed to live comfortably in retirement.
A significant number of workers and retirees (roughly 40%) got help from advisers, in contrast to those workers who are not confident — only 9% had advisers.
What does this tell us about getting ready to retire? You may or may not have control over timing. As a result, if you haven't done your homework, there is no better time than the present.
As someone who has more than 30 years of experience working with successful retirees and preretirees, I have a few observations and suggestions.
If you want to retire someday, make a list of concerns you do not want to face when you are retired. Work through the list one by one to come up with a plan to avoid disappointment in the future.
If you are happily retired, carefully watch what is in your control — spending being most important. While you can't control the markets, you can confirm that you and your financial adviser are in sync on 1) how to produce the cash flow you need to pay your bills, now, and in the future, and 2) how to produce capital appreciation. If you consider yourself a confident retiree, let me know what has worked (or hasn't) for you. Email me at readers@juliejason.com.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2021 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.