In today’s economy, more people are worried about retirement.
“That means that they’re thinking about it, and that’s a good thing,” said Tamara Langham, senior account executive with the Defined Contribution Customer Experience Group at Lincoln Financial Group’s Atlanta office.
She meets with corporate clients to help them create and monitor defined employee contribution plans -- 401(k)s and others -- for their employees. Her team of retirement consultants works directly with the employees to advise them on retirement planning.
“Sometimes we run across an older employee who says that he should have started saving earlier. We tell participants that the best time to start saving is 10 or 20 years ago,” said Langham, “but the second best time to start is now. They may have to make some hard decisions and large contributions, but we can get them to a better place.”
Many people put off retirement planning because navigating financial strategy seems too confusing and overwhelming, or they’re too busy trying to find a job or earn a living.
“Saving for retirement should be a priority because this is money you will use or leave to your beneficiaries,” said Langham. “Unlike insurance that you purchase hoping never to need it, this is money that you will be living on later.”
A new survey sponsored by the Lincoln Financial Group (conducted by Hearts and Wallets investment researchers) shows how.
“You hear so much doom and gloom concerning retirement these days. I think this survey sheds some light at the end of the tunnel,” said Garry Spence, senior vice president in Defined Contributions Worksite Services for Lincoln Financial Group. Surveyors spoke with 4,000 respondents, then narrowed the field to 1,200 successful retirees to identify four common behaviors that led to good retirement outcomes.
“Everyone’s retirement is unique, as this cross section of retirees showed. How much retirement income you need depends on your goals, what you want to accomplish, your lifestyle and other extenuating circumstances,” said Spence. “But the survey came up with a simple tool to help you know if you are on track. It suggests that savers aim to hit the savings benchmark of at least 10 times their income at a typical retirement age.”
You can improve your chances of hitting that mark by adopting the following four behaviors.
1. Get advice from a financial professional.
“Professionals have specialized knowledge to help you know where and why to invest your money,” said Annika Ferris, partner and wealth adviser at Brightworth, an independent investment firm in Atlanta. “You need a portfolio that includes stocks for long-term growth to outpace taxes and inflation, bonds, enough cash for liquidity and stability, and other assets. Professionals understand the different types of investments and how putting money in different buckets can help you minimize risk.”
Professionals also can be more objective.
“It’s hard to watch falling portfolio prices, and not be tempted to sell, but selling low is what you don’t want to do. You need to check your emotions at the door when investing,” said Ferris.
A professional can coach you through the tough patches, explaining that if you continue to invest in the downturn, you’re buying more shares, which will benefit you when the prices go up. “There was a lot of fear in 2008, and some people sold falling stocks or stopped contributing to their 401(k)s, but our clients who stayed the course have seen their portfolio values come back,” said Ferris.
A good resource for finding a professional is the National Association of Personal Financial Advisors (NAPFA), Ferris said.
2. Participate in an employer-sponsored retirement plan or IRA.
“Most companies offer some kind of retirement plan benefit as a recruitment and retention tool. Our consultants are accessible and on site. It’s our job to make sure that employees know what they are entitled to,” said Langham.
“We work with employees who are very knowledgeable about investments and those who need to learn the basics in order to set goals and devise a strategy,” said Langham. “Participating in an employer’s plan is easy, and you’ll have access to a wider variety of investments that you might have to pay for otherwise.” Education and support are empowering, she said.
Langham has been encouraged this year to see that more companies are bringing back the 401(k) matches that were disrupted by the recession. Advisers always encourage employees to at least save enough to get the match.
3. Save steadily, and make extra contributions in "power-saving" years.
Staying the course and continuing to save through downturns will work in your favor, Ferris said. “Sometimes you’ll buy high and sometimes low, but it will even out over time.”
It’s easy to get caught up in hype and chase performance when things are going well, as many people did with technology stocks during the dot-com bubble. “Chasing yield or performance can cause costly mistakes. For instance, you want to avoid an interest rate that is out of line with the market when shopping for mutual funds or CDs. Banks are struggling and it could be a red flag,” said Ferris.
Target Retirement Mutual Funds offer investment diversification and adjust automatically to a more conservative blend as you near your target retirement date. “They’ve become a popular alternative to trying to manage your accounts yourself,” said Ferris.
Steady savers have money deducted from every paycheck or write a check regularly to their IRA, said Spence. If they get a raise, they up their contributions. If they get a bonus, they put it into savings.
4. Have an investment strategy.
- "Get a plan in place, follow it and continue to monitor it to take advantage of changes in your circumstances," said Ferris. "And make sure that you have your other financial bases covered -- that you have adequate disability insurance, life insurance and an estate plan. You'd be surprised how many people have no will."
- "It's never too early to start saving for retirement. Workers fresh out of college aren't thinking about retirement, but that's the very time to start. They'll have compound interest on their side," said Langham.
- "Relying on an inheritance, planning to sell a primary home or selling a business is not a sound investment strategy for retirement, and the retirees in our survey didn't rely on them," said Spence. "Your home or business may not have the value you expected when you need to retire. It's better to rely on yourself."
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