Over the past few years, millions of Americans have come to the realization that their retirement plans may have to change. With pensions and retirement accounts decimated, housing values falling, and job loss on the increase, a long planned retirement date may have to be pushed back.

Retirement Delayed

In the September 22, 2008 issue of “The Wall Street Journal,” Helga Cuthbert, a certified financial planner noted, “We’ll see more and more people postpone their retirement dates. Their expectations about the future and the kinds of returns they would get were simply unrealistic.” With nest eggs reduced and an economic recovery slowly taking place, Cuthbert’s assessment appears to be holding true nearly one and half years later.

But not every agrees with that point of view. Bridget Burgess, CFP, president of Symetra Investment Services and board chair of the Puget Sound Financial Planning Association in the state of Washington said, “While there are signs of economic recovery in the region, sticking to a plan, managing personal expenses and saving for retirement should be an ongoing priority, as market conditions can change quickly.”

Five Steps

Burgess added that there five steps every investor can take to ensure that their retirement plans stay on track, even when faced with financial challenges:

1. Create a plan. Begin by calculating what income you will need in retirement. Experts say that many retirees require at least 80 percent of their pre-retirement income to live comfortably. Estimate basic living costs and other expenses that may come into play, such as traveling, a new hobby, increased medical bills and, of course, inflation. Also estimate potential income from rental properties, other investments, inheritances, pensions, etc., and incorporate these estimates into your financial plan.

2. Manage and reduce your expenses now, before retirement. To help offset future costs, manage expenses before retiring. One of the best ways is to cut down credit-card debt. The average household’s outstanding credit-card debt was $10,679 at the end of 2008.2 When regular paychecks come to an end, large credit card bills can be a real burden.

3. Diversify your investment portfolio. After you decide how much you need in retirement and you’ve reduced expenses, develop a financial goal and begin investing now. As we’ve seen in the recent economic downturn, investing in securities incurs market risk. The best way to help cushion a portfolio against market volatility is to diversify – to divide your money among different types of investments, also known as asset allocation. Allocating assets among various investments and across investment styles is important because each investment responds differently to economic events and other market conditions. Diversification does not, however, assure a profit or prevent a loss.

4. Continually evaluate your investments. Changes in family, health and job benefits can affect how much income you will need for retirement. Make the most of the financial plan by reviewing investments regularly. Ensure they are still appropriate for your goals, timeline and risk tolerance. These life events also trigger the need for an insurance review to make sure your life insurance coverage is in line with changing needs.

5. Consider creating a guaranteed income stream during retirement. Creating a stream of guaranteed income, such as an income annuity, can fulfill income needs during retirement, especially if you don’t have a pension. People are living longer, and the prospect of outliving your lifetime supply of money is very real. Using a portion of your retirement portfolio for guaranteed income will help ensure that your money lasts as long as you do. This guaranteed income is based on the claims-paying ability of the underlying insurance company sponsoring the annuity.

Working Retirement

But even as people plan their retirement date, many are redefining what retirement means. In an October 6, 2009 article published to “Bankrate.com,” 75 percent of Americans surveyed said that they expect to work past their retirement date. 39 percent said that they plan to work because they enjoy work while almost one-third plan to work because they expect that they will need the money.

Photo Credit: Walter Groesel

Tags: Bankrate.com, Bridget Burgess, investments, portfolio, Puget Sound Financial Planning Association, Retirement, Symetra Investment Services, The Wall Street Journal