Barbara O’Neill, Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
Steps to Get Your Retirement Planning on Track
One of the most frequently mentioned investment goals that people have is retirement. In 2017, AARP and the Ad Council introduced a new web site www.AceYourRetirement.org to encourage people to take action to save for retirement. The savings promotion effort also has a dedicated Twitter hashtag: #AcingRetirement.
The Ace Your Retirement website, a digital assistant for retirement planning, features a series of nine questions posed by Avo, a green emoji that looks like a green M&M candy. The questions asked include a user’s age, number of years until retirement (four choices of time ranges), plans to work in retirement, marital status, number of children (if any), feelings about ability to save enough for retirement (five choices of emojis), percentage of income saved per year (a slider bar ranging from 0% to 20%+), outstanding loans (five types of debt to check off or none), and self-employment status.
Each time a question is answered, Avo provides feedback on a user’s response both in words and emoji movements. Interestingly, Avo did not ask a few other questions that retirement savings tools typically include: amount of retirement savings already accumulated, health status or expected life expectancy, and asset allocation weightings or estimated average annual return on investments. Perhaps this is because the website is focused more on general retirement planning action steps rather than on calculating an exact amount of money that people need to save before they retire.
I answered the questions differently several times to test the full range of the website’s capabilities. Upon completion, it provides a list of top three action items as well as other tasks requiring a user’s attention. Below are some suggested strategies that Ace Your Retirement is suggesting to prepare for retirement:
Consider waiting until full retirement age (FRA) to claim a Social Security benefit so that it is not permanently reduced. If you delay further, up until age 70, the benefit will increase by 8% for every year that you wait.
File for Social Security benefits three months before you plan to start taking them. To get an estimate of how much you will receive, create an online account at https://www.ssa.gov/myaccount/.
Create an estimated retirement budget. Calculate your household expenses today and project what they will be after retirement. For example, commuting costs will disappear but travel and entertainment expenses might increase.
Add up your retirement savings accounts (e.g., IRA, 401(k), taxable accounts) and multiply the total by 4% (.04) to determine the amount to withdraw annually from these accounts to last about 30 years. Divide the annual withdrawal amount by 12 to calculate the amount of income available monthly.
Compare estimated retirement expenses with anticipated income from Social Security, a pension, 4% investment withdrawals, and/or other income. If you have a shortfall, consider increasing savings, working longer, downsizing, or adjusting lifestyle expenses.
Organize your financial records, including an inventory of documents and where they are kept (e.g., wallet, home files, safe deposit box). Consider making “soft copies” (e.g., scanned documents on a flash drive or in a cloud server). Also inventory digital assets and beneficiary designations on retirement savings accounts and insurance policies.
Consider how you will spend your days during retirement and perhaps turning a hobby that you do for fun into a sideline business. Then research the steps required for setting up a business and write a business plan.
Consider other ways, besides working after retirement or starting a business, to “monetize your time.” For example, taking the time to research options for “big ticket” purchases or utility services could result in significant savings.
Take advantage of available cost-saving opportunities such as senior discounts on purchases and entertainment costs (e.g., movie tickets) and income and/or property tax reductions.
The Ace Your Retirement web site is a good starting point for people who want a retirement savings action plan. For more impact, it can be combined with the Ballpark Estimate, which helps people determine how much they need to save to support their desired lifestyle. Both resources provide a personalized action plan to help users ace retirement.
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