Reality Check
Five things advisers can do to help participants 50 and older to prepare for a leaner, and likely meaner, retirement
Reported by Judy Ward
1. Make a post-retirement budget
Unfortunately, many people “put their heads in the sand” when it comes to preparing for retirement, says Nick Della Vedova, President of Aliso Viejo, California-based 401(k) Advisors. “They have not really done the planning. They probably felt to a certain extent that they were behind before, and maybe now they know that they are a lot behind,” he says, “but they have not necessarily said, ‘This is how much I am behind, and here are the action steps I need to take to deal with it.’”
They should, Della Vedova says. “The first step is to have a plan,” he says. “When people have a plan in place, at least we have somewhere to pivot from.” A key step to helping 50-plus participants plan for retirement is putting together a post-retirement budget, says Gregg Andonian, Managing Partner of Milford, Massachusetts-based Baystate Fiduciary Advisors, Inc. “They may have to make some adjustments to what they were planning but, for a lot of people, once they make a real budget, they feel better. They are typically not so far off that panic sets in. It is more of an understanding that there is a slight gap that can be resolved by a more-realistic budget and/or part-time income.”
Baystate talks with participants about post-retirement budgeting and gives them a worksheet. “At our 20-minute one-on-one sessions that are held at the facilities each quarter, we will distribute or e-mail the budget worksheet should it be applicable. We ask them to figure out the lifestyle they want,” Andonian says, “and look at their current bills: what could be cut and what could not, and if anything needs to be added.”
Ciullo thinks 50-plus participants would benefit a lot from applying that kind of discipline to their current budget. “We are saying to those clients, ‘Let’s get back to basics. Get out of debt, and just plan on living with less. Get rid of your credit cards. Be on schedule to get your house paid off at 62 or 65, whatever the plan is,’” he says. “If you have got 10 years to go before you want to retire, you can hit it [increasing contributions] hard.” Even amid the economic turmoil, he knows of a number of participants who have refinanced their mortgages but continue to make the same monthly payment, so they can pay off their mortgages earlier.