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Seven Steps to Later Life Financial Security

August 2021

Barbara O'Neill, Ph.D., CFP®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension

Retirement is one of few financial goals that people cannot borrow money for. There is no such thing as a “retirement loan.” Therefore, not surprisingly, one of the most frequently-cited goals that people save money for is retirement. Below are seven “evergreen” time-tested steps to achieve financial security in later life:

Determine a Post-Career Income Goal
There is no magic number. The amount that people need depends on factors such as financial goals and lifestyle decisions, work plans, availability of employer benefits, health status, and estimated life expectancy. While 70% to 90% of income earned during full-time working years is often recommended, some older adults may spend 100% to 110%, especially during their “young old” years (approximately ages 65–74).

Do Some Math
A useful planning tool is the FINRA Retirement Calculator. It has 12 questions about relevant variables including money already saved, annual income need, expected income from other sources (e.g., a pension and/or Social Security), current age and tax rate, and assumed average annual return. The calculator provides a retirement analysis in text and chart form and details about asset accumulation over time.

Determine An Asset Allocation
This is the percentage of investments held in different asset classes including stocks, bonds, and cash assets. Having money in different places spreads out investment risk. Key factors in determining personal asset allocation percentage weights for each asset class (e.g., 50% stock, 40% bonds, and 10% cash) are age, investment time frame, and risk tolerance level, which can be determined using this online self-assessment tool.

Rebalance Investments Periodically
 The aim is to maintain an investor’s original asset class weightings (e.g., 50% stock, 30% bonds, 20% cash equivalent assets). This can be done by selling securities in an “overweighted” asset class or buying in an “underweighted” asset class with new money. Some people rebalance on a fixed date (e.g., birthday) each year while others rebalance when there is a 5% to 10% shift.

Balance Risk and Reward
Data exist on average returns over time of various combinations of asset classes (e.g., 70% stock and 30% bonds). While past returns are no guarantee of future returns, they are instructive. Generally, the more stock in an investor’s asset allocation mix, the greater the potential for high average returns and the more volatility (i.e., the spread between gains and losses) in an investment portfolio.

Set Later Life Goals
One way to set future goals is to answer several key questions about your planned lifestyle as an older adult: Where do you want to live? Will you continue to work? What hobbies and activities will you spend time on? and What activities are on your “bucket list”? Use this goal-setting worksheet to identify a deadline date and dollar amount for each financial goal.

Anticipate Spending Plan Changes
Spending patterns can change quite a bit as people get older and/or step away from the labor force. Expenses that often increase in later life include medical and dental expenses, health insurance premiums, travel and entertainment, and gifts. Those likely to decrease include auto insurance and expenses, clothing, and utilities, property taxes, and home maintenance if people downsize. Income taxes may increase or decrease depending on factors such as changes in income in later life and required minimum distributions.

For additional information about planning for retirement, review the Purdue University online course Planning for a Secure Retirement.