Retirement means different things to different people. Some look forward to a more leisurely, unscheduled way of life, while others think about seeing friends and family more often or finally getting the chance to travel. But whatever your idea of retirement, it’s important to be specific about how you’ll spend your time. By making that decision, you will enable yourself to more accurately determine what assets you’ll need to live comfortably. According to the results of PNC Wealth Management’s “2008 Wealth and Values Survey,” of the more than 1,200 wealthy Americans surveyed, 34 percent were behind on retirement planning, uncertain about it or had no retirement plan at all.
Smart Business spoke with Paul Gaudio, senior wealth planner at PNC Wealth Management, about the survey results and the steps you can take to help yourself better plan for retirement.
Why are so many people uncertain about their retirement goals?
The last 18 months have made everyone re-evaluate their goals, no matter how much money they make. It’s not surprising that people are uncertain about how much money they’ll need to retire.
Nobody, particularly those earning more than $150,000 a year, likes to admit defeat or mistakes, so people create financial illusions to rationalize their retirement plans. Almost half of the survey respondents thought that they would need to double their current income to feel secure in retirement, but there were discrepancies among all net-worth groups about exactly how much is enough.
Retirement discussions can be uncomfortable. They force people to think about their own mortality and what legacy they’ll leave for their loved ones. Add to that a host of variables beyond our control — Social Security, the turmoil in today’s markets, the rising cost of health care — and it’s understandable why the prospect of planning for retirement is overwhelming and confusing.
What were some of the survey findings that surprised you?
The survey results challenged some long-held notions about America’s wealthiest citizens. We may assume that because someone makes more money that he or she would want to retire earlier and perhaps make lavish and extravagant purchases, but this isn’t necessarily the case. When asked at what age they planned to stop working, 20 percent said they planned on working until at least 70 years old, and more than half said they will continue to maintain the same primary residence they live in now. Seventy-six percent who are looking ahead to retirement are excited to have more free time to spend with friends and family. Fifty-four percent said, ‘I want to spend most of my time traveling,’ and only 16 percent said, ‘I want to try a new career after I retire from my current one.’
Collectively, these results illustrate the need to more effectively frame the retirement conversation around a discussion of spending time as opposed to money. Figure out exactly what you want to do when you retire. Will you travel or purchase a vacation home, or will you maintain your primary residence and spend most of your time with family and friends? Do you plan to continue working part time? Perhaps you’ve even thought about starting a new business.
Once you’ve decided how you’ll spend your time, what is the next step?
You may want to include a trusted financial adviser at this point in your retirement planning process. He or she will be able to help you with some of the more common decisions you’ll face, such as elections that must be made with respect to employer-sponsored retirement plans, medical coverage, life insurance, compensatory stock options, deferred compensation and restricted stock. A financial adviser can also assist you in formulating an appropriate asset allocation to meet your annual living expenses for your life expectancy. Other things to consider:
■ Think about what assets you will need to maintain the lifestyle you are envisioning. Will you need to generate income from your assets? How much? Factor in inflation and the rising cost of health care. They can significantly influence your cash flow through the years.
■ Consider your investment portfolio and determine your risk tolerance. Investing in stocks, bonds and cash equivalents carry different risks, and knowing your tolerance will help you to know how much investment risk will be necessary to reach your goals.
■ Think about gifting. Charitable gifts aren’t subject to estate or gift tax, and your contributions can result in substantial tax savings for you while helping others.
■ If you’re a business owner, what will happen to your business if you retire or pass away? Succession planning can help answer this question and should be part of your overall retirement strategy. A good succession plan can make it easier to maintain control of your business while also helping to secure your family’s financial future, even if you can’t be there for them through its transfer.
When asked what advice they would give someone who is preparing for retirement, the majority of affluent retirees in the study said, ‘Live a healthier life, and start planning early,’ and that’s good advice. The more specific you are in describing your ideal retirement scenario, the more likely that your financial plan will be the road map you need to achieve it.
The PNC Financial Services Group, Inc. (“PNC”) provides investment and wealth management, fiduciary services, FDIC-insured banking products and services and lending and borrowing of funds through its subsidiaries, PNC Bank, National Association, PNC Bank, Delaware and National City Bank, which are Members FDIC. PNC does not provide legal, tax or accounting advice. Investments: Not FDIC Insured. No bank guarantee. May lose value.
©2009 The PNC Financial Services Group Inc. All rights reserved.
Paul Gaudio is a senior wealth planner for PNC Wealth Management. Reach him at (609) 497-6612 or [email protected]. To learn more about the Wealth and Values Survey, visit pnc.com/wealthandvalues.
