Beating Retirement Angst

April 11, 2024

Are you feeling anxious about your financial life? If so, you are not alone. In fact, according to a recently published study, one-third of Americans say they do not feel financially secure—the highest proportion recorded in the study’s 13-year history.

The Northwestern Mutual Planning & Progress Study is conducted every year by the Harris Poll. It explores various aspects of American financial life, including topics related to retirement and savings.

This year’s study shows that Americans are finally waking up to a set of very inconvenient facts: 1) retirement is coming, 2) it is expensive, and 3) they aren’t ready for it. Baby Boomers are especially vulnerable. More than 4 million Boomers will turn 65 in 2024—an average of 11,000 per day, a pace that will continue for the next four years. It is the largest surge of people hitting traditional retirement age in American history, dubbed by some observers as the “Silver Tsunami.”

Americans’ low retirement savings is about as newsworthy as “dog bites man.” I’ve been reading about it for at least 35 years. But as the Silver Tsunami hits, it is worth reflecting on the social, political, and economic ramifications of this lack of preparation.

According to the study, Americans now say they will need savings of $1.46 million to retire comfortably—a 54 percent increase from 2020’s reading. In contrast, the amount they have saved for retirement ($88,400) has barely budged from its 2020 level ($87,500). In other words, people seem to be getting smarter about their needs, but they aren’t getting any wiser about their actions.

If you worry you won’t be ready when retirement comes, you can start now to prepare. You may think that it’s too late to make a difference, but it isn’t. Just start wherever you are and figure out your best next step. A good place to begin may be doing a complete personal financial plan.

A personal financial plan is a comprehensive strategy that will allow you to see how all the pieces of your financial life fit together. It involves assessing your current financial situation, formalizing specific financial goals and priorities, and developing a roadmap to get there. Key components of your personal financial plan should include:

  1. Financial Goals: What are your specific objectives and what is your time frame? Retirement is certainly an objective, but it is probably not the only one. Other examples may include paying off debt, funding a child's education, travel, or relocating to a new area.
  2. Budgeting: I hate to mention this because the b-word is only slightly less awkward in most social settings than asking someone about which presidential candidate they favor. Unfortunately, you can’t prepare for retirement without understanding the standard of living you want to have and that means developing a budget.
  3. Debt Management: Your plan should include a workable strategy to reduce or eliminate debt. Paying off credit card debt, consumer debt, student loans, and HELOCs should be your first priority.
  4. Investment Strategy: Develop an investment strategy tailored to your financial goals. Key considerations include your risk tolerance, the timing of your goals, and your ability to add to your investments over time. This will also include deciding how much to invest in appropriate retirement accounts such as 401(k)s and IRAs.
  5. Insurance Coverage: Evaluating your need for insurance is important, including health insurance, life insurance, disability insurance, and property insurance. However, be careful not to over-insure. Some insurance agents (not all, by any means) remind me of the old saying that, to a hammer, everything looks like a nail.
  6. Tax Planning: Minimizing tax liabilities is critical. Consider maximizing contributions to tax-advantaged accounts, take advantage of tax deductions and credits, and carefully consider the strategic timing of your investments.

One last pro-tip: use an experienced financial planner to help you draft your financial plan. Of course, you could do it on your own, but I recommend against it. A good planner will know which questions to ask and will help you stay honest with yourself. Over time, the planner can also help you adjust your behavior to stay on your plan, or adjust your plan to reflect your changing realities.

Please see important disclosure information here.

Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to steve@montereypw.com.