Mention retirement to 10 different people and you probably will get 10 different reactions. Some will see it as a reward for the hard work and sacrifices that are required for a successful career, and others will be left wondering what to do with the countless hours that used to be spent doing something they loved. Each career is different, but most workers will have to retire at some point, even if they want to keep working. Establishing a sound retirement plan while you're still employed will pay off when the time comes to head out the door for the last time.
As life spans continue to grow longer, we also are retiring at later ages. For years, Social Security has defined full-retirement age as 65, but it is in the process of raising the age to 67. Advances in medical technology, healthier lifestyles and other factors have resulted in longer lives for people, and now 65 doesn't seem as old as it used to. If you still find fulfillment in the work that you do, why give it up?
For others, retirement can't come soon enough, and they developed plans that they thought would enable them to retire at certain ages, maybe even sooner if the value of their houses continued to skyrocket or the stock market had another rally. Of course, the stock market took a plunge, as did the housing market, taking with them the retirement plans of countless workers. Younger workers will have time to adjust their plans; workers on the verge of retirement have been impacted the most by the current economic climate.
"It's devastated retirement plans, without a doubt," says Daniel R. Solin, author of "The Smartest Retirement Book You'll Ever Read" (Perigee Trade). "The worst thing that can happen to people about to retire is to have their portfolios reduced in value significantly right at the inception of their retirement, because it gives them so much less to work with."
The result is that many older workers face some tough choices, including postponing retirement or changing their ideas of what retirement will be like. If your plans included traveling the world and buying a new boat, you might want to readjust your standard of living.
"There just isn't enough money there to sustain their retirement dreams," Solin says.
Still, there are those who are determined to leave their working days behind them. A careful examination of their assets and expected living expenses will decide whether or not that is a good idea.
"If you can afford it and want to retire early, it's really just running the numbers. People need to understand what amounts they can withdraw from their portfolios without running a meaningful risk of running out of money," Solin says. "Not that there's just one number, but generally it's considered to be 4 percent of your nest egg. People who are withdrawing more than 4 percent have a meaningful risk of outliving their money."
Your retirement plan essentially determines your standard of living, so choosing an adviser is an important decision. Solin recommends hiring a financial planner who works for an hourly fee and doesn't have anything to sell. Planners who are certified in retirements are familiar with current tax laws and the regulations in your area.
"I don't recommend having a traditional adviser deal with your retirement because that's not how they do things. They're in the job for growth and to make clients money. They're not in the disbursement arena," says Paul Wood, a certified retirement financial adviser in Gaithersburg, Md. "When you're looking for an adviser, you want somebody who's up to speed when it comes to what the rules are for dispersing instead of growth."
Seeing as the brokers at the big Wall Street firms are essentially salespeople, the last thing they want is a senior who's ready to start taking money out of their accounts, Wood says. They're also not well-versed in the tax laws or regulations that pertain to disbursing money.
"Eighty percent of the problems that people can run into with their personal finances in the retirement arena happen during the disbursement years, not the accumulation years," Wood says.