Under the best of circumstances, the profile of a retiring Tier 1 Massachusetts educator looks like this: age 58, in terrific health, with ideas and energy for trips and activities, time for family and friends, comfortable savings and a pension that replaces 80 percent of the educator’s final salary.
With early planning, discipline (and, yes, a healthy dose of good fortune along the way), a dream result like this is possible. But is it likely? In many cases, the answer is no. Even when most of the pieces seem to be falling into place, obstacles such as delayed or suboptimal investment decisions, a divorce or an unexpected contingency can become a roadblock to early retirement, creating the need for retirement plan adjustments. These include working longer, saving more aggressively, or modifying expectations.
Contrary to what many believe, early retirement is not the norm. If you cannot retire early, you have not failed, and you are in good company. For many good reasons, working longer than one originally anticipated is becoming a fact of life. A passion for what educators do — teaching others — is a frequent motivator to keep working.
Reasons to work longer can also be precautionary. Examples include a fear of lower future investment returns, the possibility of a very long life and the potential for uncontrollable wealth-depleting factors such as health care costs, taxes and inflation. These factors can fuel the decision to continue working, even into one’s 70s, to build a cushion of extra wealth.
The question of whether retirement is financially feasible is a complex one, and it takes time to evaluate. Many people procrastinate because the analysis can be daunting and anxiety-producing, especially if one starts with questions that only raise more questions: By how much will my income drop? Will a mortgage and other debts be paid off? Do children require cash for school or early career needs? Does an elderly parent need assistance? Is my asset allocation appropriate, too conservative, or too risky? When was the last time I looked? Will downsizing or relocation be desirable or imperative? Might I outlive my money?
The key to the analysis is to be proactive and systematic, using what is desired as a starting point. Ask yourself: In retirement, where would I like to live? What do I love doing, or what have I always wanted the time to do? What amount of travel or hobby expenses will I incur? What does my spouse or partner want in retirement? What level of support do I want to provide for children and parents? Finally, I am retiring from a job, but maybe not from a career. Might I use my experience and qualifications to work part-time as a tutor or as a trainer of educators?
Once a vision has been developed, an experienced adviser can help by sizing up your starting point and then identifying the components and sequencing of an action plan to help you realize that vision. The adviser will be familiar with the technical details of mandatory retirement plan withdrawals, tax strategies and ways to protect wealth. The adviser can help with techniques and tactics successfully used by other clients. With this type of assistance, alternatives can be evaluated and a plan to support the vision comes into focus.
Alternative-sifting and planning sometimes reveal that an immediate action plan is needed to lay the foundation for the day retirement arrives. This plan can include shoring up a cash emergency fund that was depleted in paying for college, attacking credit card debt, increasing the amount of retirement plan contributions, consolidating retirement accounts from prior employment, or trimming expenses for things that are no longer essential. However, and this is critical, not everything that can be envisioned and desired can be funded. An analysis can sometimes produce a roadmap for action that makes one’s goals 100 percent attainable. But even in situations where this is not possible, an analysis conducted in advance will generate the time needed to begin prioritizing goals.
Of course, in retirement, any plan will be affected by factors such as actual investment returns, unanticipated needs for cash or the introduction of a new goal — anything that changes the assumptions baked into the plan at the outset. Even a fundamentally sound plan will require periodic review, correction and revision. But the investment of time spent framing one’s goals, taking stock of current circumstances and making planning inroads always yields a result better than one produced by procrastination.
Stacey Braun Associates, Inc., is the MTAB-endorsed provider of an optional financial planning service. For an annual fee of $140, a member can obtain up to three (3) hours of telephone or videoconferencing time with an adviser to discuss almost any financial matter in confidence. Because the advisers do not sell any financial products, the environment is free from sales pressure. The goal of every session is to provide ideas, suggestions, or information that a member will find useful, constructive and empowering.