The New Rules of Retirement Planning

Written by Emily Sanders Tuesday, August 07 2012

Ah, retirement. We’ve all seen the commercials: that time in life when you can finally relax, all your monetary needs taken care of by the pension plan you signed up for years earlier. There’s probably a sailboat and a sunset somewhere in this vision. But that’s all so far away in the future you don’t need to worry about that yet, right?

The new reality of retirement is that we are no longer so certain when it will start, what assets we’ll have available to us and how long our investments will have to sustain us. Health care costs have skyrocketed; we’re living longer, and the market is volatile. Add blended or extended families and second careers into the mix, and suddenly retirement has become a complicated proposition. That’s why it is vital to have a retirement plan that is flexible enough to accommodate the changes that lie ahead, even if we can’t see what they are yet.

The good news is that you have more freedom to customize your retirement plan than ever before. With that in mind, here are some new rules for your retirement planning.

Rule 1: Remember Your Retirement Plan is YOUR Retirement Plan

There’s a great transition in retirement planning underway, as we move from collectively pooled retirement funds (think Social Security and pensions) to individually held accounts (like IRAs and 401(k)s). Accounts like 401(k)s and IRAs give the investor broad discretion over the assets they hold and distribution of those assets.

But remember that with greater access comes an increased need for self-discipline. According to an Insured Retirement Institute report, 21 percent of Generation Xers with 401(k)s prematurely withdrew funds in the past year - a risky move at a time when we are transitioning to a retirement with fewer safety nets.

Rule 2: Educate Yourself

Having choices can help you maximize your retirement options, but only if you prepare well. Increase your financial literacy; simple curiosity can go a long way toward helping you make the smartest choices. Ask questions regarding the different investment options not just of your employer, but also of the plan manager. Take the list of investments to a financial professional or even a friend that you trust who knows about investing. Get a second and third opinion. By taking an active interest, it is possible to become more financially literate while avoiding risk.

Rule 3: Be Flexible

There are no rules about when retirement “should” start anymore and how long it will last. Your plan is not a fixed entity; revisit it as your life changes (marriage, remarriage, divorce, change of career, birth of children and so on). For example, if you start a new career at 60, retiring at 65 may not seem so attractive anymore.

Reviewing your financial plan on a regular basis, every 18 to 24 months, can help you stay on course to a successful retirement. You can reach that goal by a variety of routes and should be prepared to change your retirement strategy as the course of your life shifts.

Rule 4: Overprepare for the Unexpected

Current projections estimate health care expenses will rise by 70 percent over the next 10 years. The stock market has yet to recover from the 2008 crash, and the Social Security Administration estimates the Trust Fund will be exhausted in 2033. We can make predictions about where costs are heading, but we can’t make any guarantees.

Part of the seismic shift in retirement is that retirement planning no longer involves taking into consideration only your own financial future, but also that of your parents and children. Planning for the care of aging parents and school-age children is increasingly an important part of retirement planning for this so-called “Sandwich Generation.”

For instance, the cost of buying long-term care insurance for a parent is a drop in the bucket compared to what the cost of providing that medical care can be. Talk to your kids about which colleges you can afford and encourage scholarship opportunities. Having these difficult conversations now can save you money and heartache later.

Rule 5: Start As Soon As You Can

Obviously, the best time to start planning for your retirement is as soon as you start working. Start as soon as you can to maximize benefits, but it is never, ever too late. If you’re not sure where to start, a financial planner can help you figure out the best retirement plan for where you are in your life.

The trend is clear that from this point on, the primary responsibility for retirement will rest with the individual. Make the most of your future by making smart choices today.

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Emily Sanders, CPA, is chairman and CEO of Sanders Financial Management in Atlanta, a firm dedicated to serving the financial needs of women. Contact her at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or www.SandersFinancial.com.