Friends Don’t Let Friends Neglect Retirement Planning

One of the year’s lesser-known holidays is National Best Friends Day, celebrated every June 8. While many people’s idea of reconnecting with a good friend involves brunch or going to a ball game, true friends can also take the opportunity to discuss something far more important – retirement planning.

According to this study by the National Institute on Retirement Security, 92 percent of working households do not meet conservative retirement savings targets for their age and income. This is especially true of the country’s 70 million-plus Baby Boomers, who are now reaching retirement age at a rate of 10,000 per day. Many are left with no choice but to keep working.

Take into account the facts of rising cost of healthcare costs and longer lifespans, and it’s plain to see that the danger of outliving retirement savings is very real. So if you have a friend in a potentially precarious situation, use this opportunity to talk them through their retirement plan by asking these three questions.

  1. What are your monthly expenses? It’s one thing to live beyond your means, but even a thrifty life can quickly get expensive when you factor in everything. The cost of food and utilities may not change much, but what if you have a medical procedure and your insurance doesn’t cover all of the necessary medication? You should sit down with your financial planner and come up with a liberal estimate, anticipating any emergency expenses.
  2. What is your income? According to the Social Security Administration, Social Security benefits represent about 38 percent of the income of the elderly, even though the average monthly benefit is only $1,294. Suffice it to say that’s not going to cut it. Retirees need a stable source of income, but because of their relatively short investment horizon, their options are limited. Historically low interest rates mean most savings accounts will fail to outpace inflation, while broad market index funds can carry too much short-term risk. One potentially attractive alternative is high-quality bonds, which can provide a steady stream of income.
  3. How much do you have saved? Unfortunately for many Americans, the answer is not enough. Nearly one-third of American workers without a retirement plan have less than $1,000 in savings and investments that could be used for retirement, not including the value of any real estate or defined benefits plans, according to the 24th annual Retirement Confidence Survey by the Employee Benefit Research Institute. Some might be tempted to cash in their 401(k) early just to dump extra funds in speculative investments, but that carries the very real risk of losing everything. An easier way to boost savings is to sell off hard assets, including real estate and valuables such as jewelry or antiques.