The market volatility of the past year has created many new risks for Americans, especially those planning for retirement.
According to a recent study from LIMRA, 42% of adults admitted to taking unfavorable actions in recent months with their savings and investments—like making early withdrawals. As the impacts of rising interest rates and inflation are expected to extend into 2023, Americans will likely continue to change their retirement savings strategy to adapt.
Despite the importance of retirement as a major milestone in Americans’ personal and financial journeys, a recent survey by Athene found that only half of American adults saving for retirement (49%) feel that they are on track to reach their savings goals for their golden years ahead. And, while there are many elements to a retirement strategy, narrowing some of the critical to-dos down into a checklist can help diminish anxiety and encourage a financially healthy retirement.
Here are three actionable steps to help put you on the right path to retirement readiness.
1. Make a retirement-specific budget
A well-designed budget is one that grows with you in every stage of life and with every milestone or challenge. This can include anything from a new job or promotion to changes in marital status to depleting emergency funds due to the pandemic and / or market volatility, and more. In fact, the same LIMRA research revealed that in the current market environment, 77% of adults have become more budget conscious in an effort to improve their financial stability.
As a first step toward establishing a retirement budget that fits your unique needs, take stock of your different streams of income as it’s important to remember that you’ll no longer be receiving regular paychecks. Setting a budget based on cash flow can help you to recognize the money that comes in and out of your bank account. It’s also important to consider your retirement date. Having an estimated time frame of how long you have until your retirement will help determine the nuances of your budget—like how much to set aside each month, which types of accounts to save with, etc.
Additionally, before retiring, determine how you want to retire. This can help you further differentiate between what is a “want” vs. a “need” leading into this next stage of life. Remember that your budget will continue to evolve, as most Americans’ spending in retirement fluctuates between spending more money earlier in their retirement, less in the middle, and more again in later years when health expenses can drive spending back up. When planning for retirement, it’s important to think about your future self’s needs and the risk level you’re willing to have in your portfolio in order to best determine the savings vehicles you should be utilizing.
2. Cater your portfolio to your individual needs
As you plan for retirement, especially amid the market volatility of the past two years, it may be beneficial for your investments to take on a more defensive position or carry less risk. In fact, Athene’s research revealed that 58% of American adults agree that their retirement savings strategy needs to be more risk averse as they approach retirement.
The simultaneous desire for stability in the volatile environment and expectations of returns makes finding the right retirement savings vehicles a challenge for some savers. However, at times like these some investors may consider products like fixed indexed annuities (FIAs), for example, which may earn interest when the market goes up. At the same time, the interest earned is protected against future market downturns. Additionally, FIAs allow your assets to grow tax-deferred, another priority for some consumers.
To better understand the needs of your portfolio, similar to building your budget, you also need to take stock of what is coming in and out of your bank account and analyze what income you will have in retirement. Start by calculating your Social Security benefits. To look at your earnings and get an estimate of what you’ll get from Social Security, you can create a login at ssa.gov/myaccount. If you have a pension, it’s important to proactively get in touch with your human resources department or pension benefit manager as you plan for retirement. These professionals can guide you through the process and give you a better sense of what your monthly payout will be when you reach retirement.
Regardless of how you’re currently saving, coupling your Social Security benefits, pension and other retirement savings vehicles with an FIA—which guarantees income for life and provides regular payments throughout your retirement in the absence of a paycheck—can provide you a sense of calm when the markets are unpredictable.
3. Connect with a financial professional
Making financial decisions and planning for your future retirement can be overwhelming, especially if done alone. A financial professional can help you see around corners and give you the tools to develop a holistic retirement plan. They can also boost your financial education and awareness around seemingly complex financial products.
With ongoing market volatility and inflation on the rise, financial professionals can play a key role in helping you build a retirement portfolio with products that meet your needs.
There are other considerations for retirement that are equally important—such as factoring in healthcare expenses into your retirement plan, taking stock of all your assets, eliminating debt, and more. But whether you’re midway through your career or a stone’s throw away from retirement, these basic steps can help you better understand your financial needs and enter retirement better prepared for the life you want to live.
Adam Politzer is chief product officer at Athene. This material is provided by Athene Annuity and Life Company (61689) based in West Des Moines, Iowa, which issues annuities in 49 states (excluding NY) and in D.C.
Not affiliated with or endorsed by the Social Security Administration or any governmental agency.