Retirement planning can be a daunting task for many, but with the right approach and understanding of the challenges, it is possible to create a well-thought-out plan that provides discipline, order, safety, and peace of mind. This article will discuss the retirement income challenge and how to create a unique retirement income plan that caters to an individual’s specific needs.
The Retirement Income Challenge
The retirement income challenge involves managing the distribution part of retirement, which is often compared to skiing down a mountain, while the accumulation process is likened to riding a ski lift. Questions that need to be answered during retirement include how to invest, distributions, taxes, risk, and keeping income up with inflation. The overarching question for retirees is how to create an inflation-adjusted stream of income that will last for the rest of their life.
Why Many Americans Are Not Ready to Retire
Most surveys indicate that around half of all Americans have less than $5,000 in savings, making retirement planning a challenge. This is often due to prioritizing shorter-term goals and not knowing how much they need to save for retirement. Delaying retirement savings can make it difficult to catch up later and miss out on the power of compound interest. Some people have already used their retirement savings for emergencies, which can have severe consequences, such as early withdrawal penalties and tax obligations from withdrawing money from a 401(k) before eligibility.
The Decline of Employer-Paid Retirement Plans
Not having an employer-paid retirement plan can also make it difficult to save for retirement. Private sector defined benefit pension plans have closed to new members, and liabilities for pension plans are shrinking. Pension providers are focusing on identifying a long-term endgame, which comes with challenges such as volatility in global investment markets, sponsor covenant risk, and non-financial factors like regulatory impact and member life expectancy.
Overcoming Challenges and Securing Your Financial Future
Despite the challenges, recent years have seen growth in understanding and potential solutions to secure your financial future. Consulting online calculators or financial planners can help determine how much you need to save for retirement. Developing and sticking with a long-term funding strategy, while considering factors such as benefits paid, discretionary elements, benefit indexation, and regulatory uncertainty, can help create a retirement income plan that is unique to your specific needs and ensures an inflation-adjusted stream of income that will last for the rest of your life.