Approaching retirement

Do you have a set age in mind at which you want to retire? Are you just going to wait until you are in line for full Social Security benefits? Or are you going to make a decision based on your asset level and what that means for your retirement status?

The question is, “When are you going to retire?" and the answer is, “As soon as possible." The follow-up request is, “Define ‘as soon as possible’”?

Do you have a set age in mind at which you want to retire? Are you just going to wait until you are in line for full Social Security benefits? Or are you going to make a decision based on your asset level and what that means for your retirement status?

Choosing when to retire can actually affect the quality of life in retirement. While investors often think lustily about the day they will retire, they don’t give a great deal of thought about planning for it, according to Spectrem’s study Financial Wellness in Retirement.

While many investors get fuzzy on the details surrounding retirement, most of them have a preconceived notion of when they plan to retire. Their responses are included in Financial Wellness, along with thoughts from retirees specifically about their retirement planning scheme.

When financial professionals meet with investors who have not yet retired, it would be fair game to ask what they have planned in that area. If they are adamant about retiring at a certain age, a financial professional can help determine what investment decisions might make that an easier decision. If the investor is aiming for a certain asset level, again the financial professional can help make that happen, and possibly make it happen sooner than the investor thought.

According to the retirees surveyed for Financial Wellness in Retirement, the most popular answer to the question “when are you going to retire?” is “a certain age”. Whether it is retiring at 55, 60, 65 or 70, 30 percent of investors had that as their retirement goal. That sort of goal was more popular among older retirees: 38 percent of retirees who have been retired for at least 10 years aimed for that particular age as their retirement goal.

Financial professionals working with investors aiming for a certain age for retirement need to be honest about what that investor’s current portfolio will offer in terms of income when that age is reached. Otherwise, the investor could become disappointed, or make an inappropriate decision, and in both cases, the financial professional could prevent that from happening with forthright analysis of the investor’s net worth and future income products in place.

Unfortunately, 23 percent of retirees retired due to circumstances beyond their control. Numerous members of the Spectrem panel told stories about having retirement showed upon them by the death of a loved one, or a sudden loss of employment. When this happens, the investor will be needing advice from a number of people, including their financial professional. While it is difficult to assist someone who has retirement thrust upon them, those people serve as a good example to other investors that the unexpected can happen at any time and investors need to build in some financial care in case they suffer an unfortunate loss of income.

Twenty-two percent of retirees aimed for a certain level of assets which would determine when they would retire. That means they are dependent on a combination of income from work and income from investments to reach that level. Investors need to know what the proper level of assets is to provide for a comfortable living in retirement, and that is where their financial professional plays a role. There are many factors that need to be considered, and an investor might not be in a position to correctly research their income status upon retirement.

Only 4 percent of retirees retired when they reached the age of full Social Security benefits; that is more of a trend among older Americans. Only 2 percent of all retirees retired when they were old enough to be eligible for Medicare.

Top Takeaways for Financial Professionals:

There are indeed investors who do not know when they are going to retire, and there are investors who have no plans of retiring, ever. But those that want to retire need to think about when they want to do it, and financial professionals need to react accordingly. Investors who want to retire as early as possible need to show more aggressiveness in investment techniques, while those who are going to wait until the mid-60s when they reach full retirement tag are going to need a different strategy. There are also some Millionaire investors who have no plans to retire, and they present an entirely different investment approach.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Voya. Comments concerning the past performance of investment indexes are not intended to be forward looking and should not be viewed as an indication of future results.