Ask the Boston Money Coach
Question: Will working longer and deferring retirement allow me to have more money for when I finally retire?
I’m 54 now and was originally planning on retiring at 65. My 401K took quite a hit a few years ago and now I’m wondering if I should be postponing my retirement.
Financial Planning
Response from Boston Money Coach Steve Stanganelli:
Time heals all wounds and sometimes it helps salvage a 401(k) as well. You may be able to replenish your retirement funds given the time frame you noted. It really will depend on a number of factors: how much you set aside, the amount of any company match, the mix of investments, and the performance of those investments over time.
If you are not saving the maximum or you have no company match or you are socking away the money in only a “stable value” or money market type fund, then you may not be getting the maximum return on your savings. So it may not matter how long you delay retirement since your money isn’t working as hard as you are to prepare for your retirement. If you are selecting the “best performing” mutual funds, you may find that you are chasing past performance. Last year’s winners may not be the same for this year.
You need to consider your appetite for risk (which generally tends to be less as you age and try to recover from the beatings received from the market over the past few years). You may want to try the risk tools available at www.RiskProfiling.com. For a nominal fee you’ll have a good measure of your risk that you can use in conjunction with your advisor.
Armed with that information you can then be better prepared to select investments that may help you rebuild your nest egg. Asset allocation is still one of the best ways to reduce overall risk in a portfolio (but it never means that your account will never lose value at any given time). To find an asset allocation that is appropriate for you, speak with an CERTIFIED FINANCIAL PLANNER™ professional. Or use the tools available at Morningstar.com or www.myplaniq.com.
What matters more than the amount of cash you’ll have when in retirement but how much you’ll need. This will depend on your lifestyle, your debts and your health. If you have low debts and no mortgage, you’ll have more cash flow for living expenses. If your company does not provide for retiree medical insurance, you’ll need to budget for that as well.
The other issue in this equation will be Social Security. By delaying retirement, you’ll build credit for a higher monthly benefit. There are even specific strategies for when to claim Social Security that may improve and maximize your total benefits. (Check out www.SocialSecurityTiming.com for more information).
If you’re looking to put hard numbers to your question, you can try the tools at www.FreeRetirementMap.com. A link to this is available through my company website.
