Retirement Planning in Houston
Houston-area investors, along with investors across the country, face a number of challenges when planning for retirement. Overcoming these challenges and successfully devising a plan that will enable you to live the life you desire in your Golden Years requires devoting a significant amount of time and effort to the retirement planning process, whether working with a financial professional or on your own. A first step in determining the type of approach that is most likely to get you where you want to be in retirement is to take an in-depth look at some of the most significant challenges facing individuals planning for retirement.
The challenges you face when it comes to planning your dream retirement are numerous and complex. Simply setting aside a certain amount of money each month or year and hoping it will suffice is not a substitute for a rigorous analysis of your retirement income needs and what steps you can take today to properly prepare yourself for the future. To improve your odds of achieving an acceptable retirement lifestyle, comprehensive, research-driven retirement planning is imperative.
Some of the challenges that make it so important to take a proactive approach to planning for retirement include:
- Juggling retirement income streams: Unlike in simpler times, when a retiree’s main worry was making sure he or she remembered to deposit the Social Security or private pension check in the bank after it arrived in the mail, in today’s world, you often must strategically schedule the receipt of income from a variety of different sources at different times to optimize your retirement success. In addition, private pension plans have increasingly been phased out in favor of retirement plans such as 401(k)s or IRAs, which place much or all of the investment decision-making responsibility in your hands.
- Rising healthcare costs and complexity: Health care is another issue that should be considered when planning for retirement. These costs have risen substantially in recent years, even for those who are covered by employer- or government-sponsored plans. When it comes to selecting healthcare plan options, a fair amount of analysis often must be done to select the option that is right for you. For those on Medicare, for instance, there are a number of options for supplemental insurance (often called Medigap insurance) that should be thoroughly researched before purchasing insurance of this type.
- Rising educational costs: Another factor that can complicate retirement planning is the ever-rising cost of higher education, which can siphon money away from your retirement savings if you are not careful, impeding your ability to save the amount you need for retirement.
- Complicated retirement plan structures: The rules and regulations relating to various retirement plan types pose another challenge to successfully planning for retirement. With fewer and fewer people relying on a single private pension or Social Security to cover all or a majority of their retirement income needs, it has become increasingly important to build a retirement income from a variety of sources. This can include 401(k)s, IRAs, annuities, cash value insurance, employer pensions, Social Security, etc. Each of these vehicles have different contribution and withdrawal rules and tax benefits, among other things, making it a complex task sometimes to choose between them.
- Volatile investment markets: Another factor requiring careful consideration when you are planning for retirement is the selection of an investment portfolio. After years of steady growth, recently, equity markets have grown increasingly volatile. Given that stock market-linked investment vehicles, such as mutual funds, ETFs, variable annuities and the like, are the most commonly used source of investment growth for retirement planning, this adds another level of complexity to the process.
- Longevity risk: People are living longer, so there is a more prevalent risk these days of outliving your income in retirement. With lifespans increasing in recent decades, your retirement planning should take into account the possibility of living much longer than an actuarial table might suggest would be the case.
Overcoming the challenges mentioned above is unlikely without taking the time to properly plan for retirement.
Given that most people would like to retire at some point, or at least cut back on the time they spend working, just about anyone can benefit from retirement planning. There are 3 main categories of individuals who can benefit from drawing up a plan for retirement:
- Those who haven’t yet saved enough to support themselves in retirement and need to either develop a retirement plan or monitor the progress of their existing plan
- Those who have retired and want to evaluate their plan to determine if any changes are needed to increase the chance that they will be able to continue to pursue their preferred lifestyle in retirement
- Those who believe they are well-prepared to retire but want to analyze their plan and evaluate their progress to ensure their retirement expectations are in line with the amount of money they are setting aside and the projected returns on their investments
It should be mentioned that the earlier you begin to plan for retirement, the better. The magic of compound interest, in which you’re able to earn interest on your interest, means that the more time you give your retirement investments to work for you, the more money you are likely to have available when it comes time to retire.
While it is true that you can make adjustments to your plan as time goes by, if your initial assumptions are way off base, you may find it difficult to make dramatic changes down the road to get yourself back on track. For this reason, making realistic, well-founded assumptions about how much money you will need in retirement and the type of investment returns you are likely to achieve is crucial when you are first drawing up a retirement plan.
A similar dynamic applies when you are heading into retirement. If you misjudge how much you can afford to withdraw from your retirement savings, the returns your savings will generate or the level of risk you should take with those savings, it can deal a serious setback to your ability to live the type of lifestyle you’d like to live in retirement.
Given the specialized knowledge needed to plan for retirement in today’s complex financial landscape, there are a number of ways a financial advisor can be of assistance when it comes to planning for retirement. A financial advisor can help you select realistic goals for your investments and identify investment vehicles to help you meet those goals. A financial advisor can also help you weather market volatility when it picks up.
Another area where a financial advisor can be useful is helping model various retirement planning scenarios and what it would take to achieve them. Most financial advisors have access to sophisticated financial planning software that can clearly demonstrate different savings options – for instance, how much money you should set aside now to put yourself in a good position to amass the retirement savings you need to successfully navigate retirement.
Many financial advisors operate as part of a team of financial, tax and legal experts in order to offer you a comprehensive financial planning perspective. Due to the complexity of modern finance, access to a variety of sources of expertise can be an important advantage of working with a financial advisor. This is especially true for retirement planning, given that there are a number of tax considerations to take into account when planning for retirement.
A financial advisor can also assist with the technical knowledge needed to select from various retirement plan options (whether this involves choosing the type of plan that best fits your individual circumstances, or whether you should start taking Social Security payments as soon as you are eligible).
Finally, in addition to helping you draw up a retirement plan and choose the appropriate retirement plan types and investments, a financial advisor can provide assistance in offering ongoing monitoring of your progress toward your plan’s objectives and suggest changes as needed.