Financial Security Provides Choices

By: Elaine E. Bedel - President , Bedel Financial Consulting

For many baby boomers, the goal of financial security has replaced the traditional retirement goal. Baby boomers want choices when they reach the age of 55 to 65. They want to choose whether to continue to work, go part-time, start a business, or volunteer.

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Spectrem Group, a consulting firm based in Chicago, recently conducted a survey of affluent baby boomers. They define this group as those born between 1946 and 1964 with $500,000 of assets to invest. The survey found that 34% intend to reduce their working hours, but not quit their jobs, after retirement. Another 30% plan to start a new career. Of the remaining respondents, 26% plan to fully retire and 10% have no intention of retiring at all.

Financial Security is the Goal

The conversations that we have with clients in our office reflect a similar sentiment. There is no longer the strong desire to retire in the traditional sense. Many enjoy their current profession and only wish to reduce their hours or move into a position with less stress. Others indicate that their present career field has changed and is no longer as enjoyable as it once was. For now, family financial considerations may keep them from making a change. However, their goal is to be financially secure by their chosen retirement date in order to have the flexibility to work or not work and not be concerned with the amount of money they make.

For others, continuing to work after their retirement age provides the necessary bridge to be able to fully retire at a later date. Instead of having the option to work, this group must work. Their plan is to save while they work full time, then reduce their earnings to a level that meets annual living expenses, but provides no additional saving. This strategy allows the investment portfolio to continue to grow to a level that can provide sufficient funding for full retirement down the road.

Steps to Achieving Your Financial Security

Financial security is the theme of the baby boom generation. Unfortunately, accomplishing financial security is not something that is done overnight. It requires a discipline of saving and investing.

Step 1 - Determine your annual income need in retirement.
Start with what you are spending today and add and subtract the expense changes you predict in retirement. Increase your resulting number to reflect the amount of income tax that you will be required to pay.

Step 2 - Determine what sources of income you will have in retirement.
If you are a participant in a corporate retirement plan that provides a pension, determine the amount you can anticipate receiving at the time of your termination. Subtract this amount along with your estimated social security benefit from the required income calculated in step one.

Step 3 - Determine the investment portfolio needed.
The shortfall noted in step two is the required amount that needs to be generated from your investment portfolio. This calculation needs to take into consideration an increasing annual need due to the effects of inflation as well as investment returns. This is not something that can be done easily with a pencil and paper. However, there are many retirement calculators available on the web that can assist.

Step 4 - Determine the additional amount that needs to be saved.
Taking into consideration your existing investment portfolio, determine the amount of funds that you need to save in order to meet your goal. Since there are two variables, i.e. annual savings and number of years to save, you may want to again utilize the retirement calculators available on the web.

Summary

"Financial security" is quickly becoming the replacement term for "retirement". When financial security is achieved, the result is choices. The choice to continue in a career that you enjoy, begin a new career without concern for financial rewards, or become fully retired. Do not leave your ability to become financially secure to chance. Do the calculations and get assistance if necessary from a qualified financial planner. Begin today to create the opportunity for choices in your future.

Elaine E. Bedel, CFP�, is president of Bedel Financial Consulting, Inc., a fee-only wealth management firm providing financial planning and investment management services. For more information, visit their website at www.BedelFinancial.com or email to ebedel@bedelfinancial.com.

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