The power of planning: Getting retirement savings on track after COVID-19
(BPT) - Planning for retirement is an important step toward long-term financial wellness at any age. Even though everybody knows to expect the unexpected, no one could have predicted how the events of the past twelve months would change the world. As a result, many people had to shift their approach toward financial planning and retirement savings and are now looking for ways to get back on track.
According to the Fidelity Investments’ 2021 State of Retirement Planning Study, more than eight out of 10 Americans (82%) indicate what's taken place this past year has impacted their retirement plans, with one-third estimating it will take 2-3 years to get back on track, due to factors such as job loss or retirement withdrawals. The good news is, with the world changing yet again, now is an ideal time to refocus on the future.
The power of planning
"Everyone wants to retire comfortably and this need doesn't change even during turbulent periods," said Rita Assaf, vice president of Retirement and College Leadership at Fidelity. "Having a plan is an effective way to put big-picture goals into perspective and make them reachable. Just as you train for a marathon or have building plans for a remodel, having a retirement plan in place gives you a better sense of where you are headed, which can provide greater peace of mind."
In fact, the Fidelity study offers strong evidence of a transformative effect on one’s financial outlook for those who have started thinking in detail about how to afford the retirement they want. Across the board, those with the most detailed plan in place to achieve their goals reported experiencing the greatest confidence. However, even the simple act of starting a plan can have a positive impact.
Interestingly, millennials are slightly more likely than their older counterparts to report having a plan to afford their desired lifestyle in retirement (35%), compared to Gen Xers (34%) or boomers (32%), even though boomers are closest to retirement. Part of this may be attributed to the fact that millennials are nearly twice as likely to have reported using online tools and calculators than boomers. These tools can provide the instant gratification of seeing a plan taking shape with just a few clicks, something many have become accustomed to in a digital age.
Finding focus in a post-pandemic world
For those looking to strengthen their financial future, planning plays an important role. According to the study findings, simply taking steps to visualize a plan for your retirement can lead to a greater sense of confidence and control. If you had a vision and lost focus, now is the time to get back on track. If you never had a plan, there's no better time than the present to start. Here are some questions to guide you:
What is your score?
Learning your Fidelity Retirement Score online at www.fidelity.com/score is a good first step. After that, Fidelity's Planning and Guidance Center features a host of planning tools to create and refine a plan for their retirement over time, including steps for improving retirement preparedness based on your score.
How much do you need to save for your anticipated rate of withdrawal?
In general, financial professionals recommend having 10-12 times your last full year of working income by the time you reach retirement. How quickly you plan to withdraw your savings will impact how much you need to save. In general, financial professionals suggest withdrawal rates of 4% to 6% annually.
How are your investments performing?
Look at performance and make a long-term plan. The stock market (S&P 500) has had a positive annual return for 26 out of the past 35 years, so looking at the big picture long term makes a difference.
When can you start collecting Social Security?
Although you can start receiving Social Security retirement benefits as early as age 62, you have to wait a few more years before you reach Full Retirement Age (FRA). Claiming Social Security benefits any time before you reach FRA can lock in a permanent reduction in monthly income.
"It's normal to have a lot of questions, especially during times of uncertainty," Assaf said. "Seeking answers to those questions and making a plan will help you feel more calm and confident that you're on the right path.”