Opinion: What’s a retirement analysis saying about your future?

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How do you know you’re saving enough for retirement? How much investment growth will you need to make it through retirement? When should you claim Social Security?

A retirement analysis can help answer those questions and many others and uncover potential gaps that you can address now rather than later. If you’ve been flying blind until now, it’s time to get some clarity.

You can try to do it yourself with online tools – some workplace retirement savings plan websites include retirement calculators, and there are many third-party versions available.

Take the time to find one that accounts for multiple inflation rates (health care vs. basics, for example), debt payments that end during retirement, Social Security cost of living adjustments, potential inheritance or asset sale “lump sum” additions and other variables that fit your situation.

The alternative is to engage a financial professional for an in-depth analysis. They may charge a fee, or some may include a retirement analysis along with managing your investments.

 Shopping for a financial adviser is a whole topic unto itself – get referrals from friends and family, do your due diligence, and meet with several before choosing one.

The starting point for your analysis is your retirement budget. If you don’t have a formal written budget, do an internet search for “budget list” so you don’t miss anything.

Remember, some expenses will change or disappear in retirement, and others may increase, depending on your expected retirement lifestyle. If you have an expensive hobby, how much more of that will you do in retirement? What about travel, especially in early retirement years?

Separate basic household spending from discretionary items like entertainment/hobbies, travel, and gifting, as those can be adjusted in the final plan.

Compare your written budget to the amount of take-home pay typically remaining each month. If the budget numbers don’t match your actual spending, you’re missing something.

Accounting for long-term inflation on the cost of goods and services makes it hard to do it yourself with a pencil and a calculator; the Federal Reserve inflation target is 2% inflation per year, but health care is a considerably higher rate, and, for example, you may not want to inflate your gifting budget over time.

You’ll also need to make some reasonable assumptions about the growth rate of your retirement savings, depending on how it’s invested and how much you’re adding each paycheck, including a company match. But past performance really doesn’t guarantee future results, so don’t base growth projections on years your investments performed especially well or poorly. Research the “normal” growth range and net of expenses, or talk to an investment professional to help you pin down a fair guess for your own investment mix.

This is a good time to build a basic understanding of investment products, too: the long-term growth rate of your savings can dramatically affect your progress and ultimately the quality of your retirement. Balance that needed growth against your emotional tolerance for the ups and downs of the stock market – or perhaps you don’t want any stock market holdings at all. If so, you may need to save more to account for potentially less long-term growth.

You’ll also need to account for your retirement income sources. Claiming Social Security sooner rather than later may be tempting, but proceed carefully; this timing can make or break some retirement projections. Also carefully consider how Social Security claiming choices might impact a surviving spouse in case of premature death. Take equal care with pension survivor choices, and your other potential sources of funds, such as the future sale of real estate or other assets.

Now run the numbers; see how it plays out through a long retirement. Men, assume you’ll live to age 92. Women, assume age 95 or even 100. For financial planning, it’s far better to plan a longer-than-expected lifespan.

Be sure to test “bad-case” scenarios, especially early death of each spouse, which will leave only one Social Security and/or pension check each month. Make sure your plan still works in those scenarios, even if they’re unlikely. Again, better to oversave than undersave.

Business owners: Seek professional guidance for exit planning tactics to help increase the value of your business now, as the quality of your retirement may ultimately depend on your payout.

Review retirement projections periodically before and during retirement to see if reality matches your projections, and adjust as needed. The peace of mind of really understanding your retirement trajectory is worth the trouble.

Certified financial planner Kenny Gott is president at Piatchek & Associates and author of the book “Bottom Line Financial Planning.” He can be reached at kgott@pfinancial.com.