How to help stay on track for the retirement you want

Paul Simmons, CFA®, CFP®
Senior Analyst, Client Needs Research

When you’re investing for retirement, focusing on this goal can help you stick to your strategy and avoid the pitfalls that investment fads and market timing can bring. But sometimes things happen that can knock you off course. It’s how you react to these events that can determine your success in reaching your goal.

It’s important to review your progress periodically with your financial advisor. You also need to be resilient and flexible should life not go as planned.

4 key ingredients to a successful retirement

In partnership with  Age Wave, a thought leader on aging and longevity, we’ve outlined four pillars to help people live well to and through retirement:

• Health
• Family
• Purpose
• Finances

These pillars are often connected — an unexpected event for any one of them can impact the others.

“Unexpected” can be a good thing

Unexpected events aren’t always bad. A grandchild’s birth or a new purpose in life could prompt you to make changes. But even negative events, if approached the right way, don’t necessarily mean you have to sacrifice your goals.

Health

Why it matters: Both pre-retirees’ and retirees’ greatest financial worry in retirement is health care and long-term care costs.¹

Course corrections include regularly challenging yourself mentally, becoming more physically active and completing preventive care visits.² These changes may help you mitigate the risk of certain diseases, live independently for longer and reduce potential health care and long-term care costs. And gaining a sense of accomplishment and spending more years with your loved ones could impact your purpose and family.

Family

Why it matters: The most important contributor to one’s identity in retirement is one's relationship with loved ones.¹

The most impactful course correction includes intentionally spending more time with family and friends.² In some cases, this may mean relocating, which can benefit your finances if you downsize or move to an area with a lower cost of living.

Sometimes, however, the opposite is true: Certain family members may be too close, and you may have to set boundaries around your time and money. By understanding each other’s perspective and coming to an agreement, you can establish healthier long-term relationships and help reduce your ongoing expenses.

Purpose

Why it matters: 92% of retirees say having a purpose is key to a successful retirement.¹

Impactful changes include traveling, engaging in new hobbies, volunteering or adopting a pet.² If this includes a paid job in retirement, it could significantly boost your bottom line.

Finances

Why it matters: You want to be able to live the retirement you envision for as long as you’re retired.

In general, there are two types of financial course corrections:

1. Increased savings
2. Decreased spending

There are many ways to achieve these. For example, you might save more by earning additional income or saving earlier. You could decrease spending by cutting down on your discretionary expenses or reducing high-interest debt. Delaying retirement or downsizing your home could help you accomplish both.

Positive changes to your financial picture can help improve the other pillars. You might gain access to better health care, be able to visit with family more often or live out your purpose through hobbies, volunteering or charitable giving.

In case of emergencies

Emergency savings and insurance can help you protect your goals by reducing the impact certain unexpected events could have on your plans.

Course corrections in action

In this hypothetical example, a recent 67-year-old retiree will receive $30,000 this year in Social Security benefits. They have $750,000 in savings and need an additional $30,000 of income from their portfolio in their first year of retirement. With recent market volatility, though, they are concerned about running out of money. Implementing course corrections can help reduce their fears.

Course corrections:

• Part-time work for the first 10 years of retirement: $20,000 per year
• Annual cost savings from relocating: $10,000

   ^{Source: Edward Jones calculations. Assumptions: 3% inflation; 4.8% portfolio return after 1% fee.}

 ^{Chart description: This hypothetical example illustrates how course corrections can help extend the life of a portfolio in retirement by reducing the need for   withdrawals. Making no changes to the withdrawal strategy reduces the portfolio value at life expectancy. However, working part time and relocating to lower the   cost of living each extend the life of the portfolio. Working part time and relocating together extend its life even more.}

As this chart shows, part-time work and relocating to an area with a lower cost of living can help reduce the need for withdrawals, so the portfolio can continue to grow.

These changes can impact the other pillars of retirement: Finding part-time work can strengthen social connections, keep you mentally active and give you a greater sense of purpose. The right relocation may reduce your living expenses, including health care costs, and may also give you more time with friends and family.

So, what if you’re still working and looking to save more for retirement? In this hypothetical example, a 45-year-old individual is looking for a new challenge and is willing to change careers in order to develop new skills. As a result of a new job, they are also considering working longer and delaying retirement.

Course corrections:

1. New job with higher pay: Increase savings by $10,000 per year
2. Delay retirement past age 62

Impact of course corrections:

^{Source: Edward Jones calculations. Assumptions: 5.3% annual portfolio return after 1% annual fee; annual Social Security benefit of $20,000 at age 62, $30,000 at age 67 and $38,000 at age 70 (based on current age and earnings of $80,000 using ssa.gov online calculator); values rounded to the nearest $10,000.}

^{Chart description: This table illustrates hypothetically how a 45-year-old worker can increase retirement income by earning more over the remainder of their career and delaying retirement past age 62.}

In addition to increasing their annual retirement income, there would also be potential health care savings by not having to purchase individual health coverage prior to Medicare eligibility age.

Changing careers — whether by obtaining an advanced degree or designation, changing to a role you are more passionate about or increasing responsibility — can potentially provide a renewed sense of purpose, and increased social benefits can come from working longer. The impact of these changes can also improve the quality of life from both a health and family standpoint.

Take the first step

Start by outlining some potential changes you could make before you need to make them. Regularly reviewing them with your financial advisor can help you be more prepared and confident should the unexpected happen.