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Master Your Retirement
Today, retirement is being redefined on many levels. Has your thinking about it—and preparation for it—changed as well? Many of us are living longer, looking for more active, adventurous, satisfying second acts. With a strategy in place, you may be able to retire on your own terms. Whatever you’re looking to do, look here to be inspired, informed, and focused on your goals.
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Let Us Contact YouHaving successfully planned a traditional retirement, Tim and Lynne Martin were ready to relax in their comfortable home near their grown children. Three years into retirement, though, they grew restless. They felt they still had many years ahead of them, and they wanted to have more fun, go on active adventures, and explore new possibilities. So they “(un)retired” by selling their home and many of their possessions, taking off not only to travel the world, but to really make the world their home. Rather than merely visiting, the Martins now settle in, meet new people, and actually entertain in rented homes.
Through careful investment and strategizing with their financial advisor, they found they were able to live off investment income, Social Security, and income from an exciting second career as bloggers and world-travelers. As pioneers of the “home-free” movement and self-described “cheerleaders” for others who are living longer, the Martins may prompt you to rethink retirement and explore options for saving, planning, and setting new goals and reaching them.
Let them inspire you.
With years of opportunity and activity to look forward to, Baby Boomers are breaking the old rules and rethinking how to finance the years ahead.
A WORD FROM OUR EXPERT
“Living longer means that you’ll need to create a lasting plan to pay expenses and enjoy retirement.” LINDA WARD, HEAD OF RETIREMENT & PLANNING SOLUTIONS, JPMORGAN CHASE
Learn MoreForget the rocking chair or hammock. For Baby Boomers, retirement is all about new experiences, and as they grow older, they are seeking more of them. In fact, according to Chase's 2016 Generational Money Talks study,* Also referred to as the Chase-University of Colorado Boulder's Center for Research on Consumer Financial Decision Making study. which captures how different generations talk and feel about money, 53% of Boomers said they want to spend their money on experiences—a higher percentage than that of Gen Xers or Millennials.
Equipped with longer lifespans than any retirement-age generation in history, Boomers are pursuing many new activities in their retirement years, including heading back to school and starting businesses at twice the rate of Millennials, according to Gallup. Some are joining the Peace Corps, which is actively recruiting volunteers age 50 and older with the slogan, “It’s never too late to be a Volunteer.”
And while popular culture tends to romanticize youth, retirement may be the best time to enjoy these possibilities. “People actually become happier as they age,” says Katherine Roy, Chief Retirement Strategist for J.P. Morgan Asset Management. “We know who we are and what we want to do and how we want to spend our time,” she adds. “We just want more time to be able to do those things.”
Today’s vision of a more active retirement calls for new approaches to preparing financially.
Tapping the wisdom of youth
This kind of active retirement calls for new approaches to preparing financially, and Boomers are turning to Millennials for inspiration. According to Chase's 2016 Generational Money Talks study, 78% of Millennials have a budget, and 70% have a savings plan. Moreover, while the average Boomer started saving for retirement at age 40, Millennials start putting money away at 23. Looking back, 73% of Boomers say they wish they’d saved more aggressively earlier in their lives.
of surveyed Boomers wish they’d saved more.
Active strategies for an active retirement
If you’re approaching retirement or have already reached it, you may not have decades to prepare, but there are steps that can help prepare your finances for a long retirement ahead.
Start with a strategy. “Living longer means that you’ll need to create a lasting strategy to pay expenses and enjoy your retirement,” says Linda Ward, head of Retirement & Planning Solutions for JPMorgan Chase. Active discussions with your financial advisor, and a projection of both your income sources and spending, can help you meet your retirement needs and understand any trade-offs you may need to make—whether finding new sources of income or scaling back expectations. Life is unpredictable and constantly changing, so be sure to consider “what if” scenarios, such as unexpected health care needs.
Keep income coming in. One way to make up shortfalls in your retirement savings, of course, is to work longer or take on a new job in retirement. More than a quarter (26%) of Boomers plan to retire at age 70 or later, up from 17% five years ago, according to the 2016 JPMorgan Chase study, “Paychecks, Paydays, and the Online Platform Economy.” In fact, the study found that work accounts for as much as 25% of seniors’ income. Yet because of potential obstacles such as health issues or caring for a loved one, work income can be unpredictable, the study found. Thanks to the new "online gig economy," which McKinsey Global Institute describes as the online marketplace for contingent work, a small but growing number of retirees are earning extra income by selling everything from a ride in their car to a stay in their home (see “Finding Tomorrow’s Income Today”).
Stay invested. Even modest rates of inflation can erode your spending power over time. With longevity at an all-time high, the bonds-only model for retirement investing is giving way to the need for a more balanced asset allocation, including stocks as well as bonds.* Asset allocation/diversification does not guarantee a profit or protect against a loss. While asset allocation does not guarantee a profit or protect against loss, “working with your advisor to build a well-diversified portfolio can help you manage risk and outpace inflation,” Ward says. Consider that a single dollar invested in Treasury bills in 1950 would have been worth $16 by 2010. Invested in a 60/40 mix of large-cap stocks and corporate bonds, that same dollar might have risen to $450 over the same period.* This does not reflect the performance of any specific investment vehicle and is based solely on the hypothetical example cited. Past performance is no guarantee of future results.
Investing $1 in
1950 with...
Treasury
bills
would return
$16 in 2010
Large Cap stocks
and bonds
would return
$450 in 2010
Maximize Social Security. It’s a cornerstone of retirement for many Americans, but when you start receiving Social Security benefits makes a huge difference in your monthly check. According to the Social Security Administration, for those born between 1943 and 1954, starting Social Security at 62 (four years before the full retirement age of 66) could lower your benefit by 6.25% annually, while waiting until age 70 could increase your benefit by 8% per year.* Source:
Social Security Administration, 2016
The financial choices that carry you through retirement these days are likely to be as complex as they are personal. Having a financial strategy that you regularly review with your financial advisor can help you make sense of the options and find strategies suited to your biggest goals, tolerance for risk, and your down-to-earth needs. After all, in today’s world, your retirement plan should be as individual as you are.
Looking to boost the retirement income you’ll receive from traditional sources? The new online gig economy may hold answers.
Americans are enjoying longer, healthier lives than ever before. While that’s great news, you may need or want additional sources of retirement income to help pay for all those extra years.
Yet according to a 2016 retirement guide by J.P. Morgan Asset Management, 67% of pre-retirement workers say they plan to keep working, but less than a quarter actually do so. “Many people tend to have unrealistic views of how long they can actually work in order to save for retirement,” says Linda Ward, head of Retirement & Planning Solutions for JPMorgan Chase. Obstacles such as health issues or the need to care for a spouse or family member may intercede. These uncertainties help make income from a retirement job unpredictable. According to the 2016 JPMorgan Chase study, “Paychecks, Paydays, and the Online Platform Economy,” seniors’ retirement income fluctuates by an average of 20% from month to month.
In the search for additional sources of income, a growing number of Americans are turning to online platforms that enable them to turn their cars, homes, or spare time into potential income streams. The study found that 4.2% of Americans (including 400,000 seniors) are earning money in the online economy, up from a scant 0.1% in 2012. Seniors using these platforms derive about 28% of their income from the online gig economy.
First, the basics
Before leaping into the gig economy, make sure you’re getting the most out of traditional sources of retirement income.
Your retirement plan. If you haven’t yet retired and can afford it, try to contribute at least 15% of your income to tax-advantaged retirement accounts such as 401(k) and IRA accounts. Take advantage of provisions allowing those age 50 and older to make catch-up contributions.
Social Security. These lifetime payments are a cornerstone for most retirees, but payments can vary dramatically depending on when and how you claim them. Explore your Social Security options and make an informed decision about claiming your benefits based on your individual and family circumstances.
Tim and Lynne Martin "(un)retired" and found new ways to support their second act.
On to the gigs!
With these sources shored up, here are four opportunities that could help pad your income.
1. Take to the road
If you’ve got a smartphone and a nice car and you enjoy driving, platforms such as Uber and Lyft offer the opportunity to earn extra income by ferrying people around. Nearly a quarter of Uber drivers are 50 or older, and AARP has started working with the company to sign up more senior drivers. Flexibility is a big plus. Available jobs are sent to your smartphone, and you decide whether to take them.
2. Rent a room
A spare bedroom—or the empty house you leave when heading off for vacation—can bring in some extra cash if you sign up to be a “host” on Airbnb. In fact, hosts age 60 and older are the company’s fastest-growing segment—and get the best reviews from customers. You set the rate and the dates when the space is available. The site collects the rent and remits the payments to you, minus the site’s marketing fee.
3. Run errands
Time is a commodity, and if you’ve got some to spare, plenty of people will be glad to pay you to run errands. At TaskRabbit, you choose what you want to do and how much to charge. The site seeks “Taskers” willing to do anything, such as housecleaning, furniture assembly, and delivery.
4. Name your skill
If you’d prefer to keep your options open, check out the eclectic mix of potential odd jobs at Fiverr. From creating video testimonials to editing résumés, Fiverr gigs are limited only by your imagination—and skills. You choose what you’ll do and what you’ll charge. They collect the payment when you deliver and remit it to you, minus their fee.
Before making any decisions, be sure to consider the advantages and drawbacks of each opportunity. What you do and the amount you earn in the gig economy will depend, of course, on your personal preferences and how much time and energy you choose to invest. But considering the long retirement awaiting so many Americans, it can be great to know that the path to the extra income you need may be only a few clicks away.
Choices you make early in life matter more than you may think. Here’s how to recognize and avoid missteps.
Planning for retirement is no set-it-and-forget-it proposition. You face key decisions at each stage that could affect your ability to save what you need to support a long retirement. It’s important to be aware of some possible missteps at different ages—along with steps you can take to get back on course.
Misstep: Playing the waiting game
You landed a job that offers a 401(k). But you’re young, and there’s rent and your student loan to pay off. You’ll start saving later, when you have a higher income. As reasonable as that may sound, you could be costing yourself thousands of dollars in savings over time. Thanks to rising longevity and the compounding value of money over time, it's never too early to start saving. “Living longer means that you’ll need to create a lasting strategy to pay expenses and enjoy your retirement,” says Linda Ward, head of Retirement & Planning Solutions for JPMorgan Chase.
What to do about it
Get in the savings habit now
No matter how strapped you feel when you’re just starting out, chances are you can set aside at least enough to earn your company’s matching contribution to company savings and retirement programs. If you sock away $200 a month and your employer matches 50 cents on the dollar, your effective monthly contribution is $300 per month. Assuming no withdrawals and a 7% return, your 401(k) would be worth $51,925 in 10 years. And just $24,000 of that amount came out of your pocket. Nearly $28,000 came from your employer and investment earnings. That $28,000 is what you’d be giving up by procrastinating.
Misstep: Putting other needs before retirement
Suddenly, life is getting serious—and so are the responsibilities. Maybe you’re moving to a larger apartment, saving for a down payment on a house, starting a family, looking for a larger car, or putting away a few dollars in a 529 college savings plan for your toddler. These are all important goals—but don't lose sight of your retirement.
What to do about it
Give your savings a boost
Now that your salary is starting to build, try to contribute at least 15% of your income to your plan to help ensure that you’ll be able to maintain a comfortable lifestyle in retirement. Dollars you contribute to a deductible tax-qualified plan can generally lower your income taxes. In your 30s, those other needs likely seem much more urgent, immediate and pressing. But while you may be able to borrow to meet some of those current needs (or scale back some of your expectations), you can’t borrow your way through retirement.
Misstep: Borrowing from your savings
If you’ve been saving steadily for 20 years, it can be tempting to dip into those savings to help meet big expenses such as a child’s wedding, paying off your mortgage, or writing a sizable check to that private college. But be wary. Although 401(k) loans may sound like a good deal since you pay yourself back at a preferential interest rate, the costs may be higher than you think.
What to do about it
Seek other sources first
Borrowing from a 401(k) stops your savings momentum cold. Say your plan returns an average of 7%. When you borrow, even if you only pay 3% interest, missing out on that 7% return means that the loan is really costing you 10%. That’s a lot more than you’d pay on a mortgage or home equity loan. Before borrowing from your savings, look for other ways of financing, or scale back on that big purchase—and stick to a budget that makes sense for you. For example, try to adhere to the “28/36 rule”—keeping housing costs at or below 28% of your total cash flow and total debt below 36%.
Misstep: Overspending
Your 50s are not only your prime earnings years, but they’re also a time when some of your biggest expenses, such as your kids’ college bills, may be receding. That sudden feeling of money to spare can easily lead to unchecked spending.
What to do about it
Use that windfall as a down payment on the future
While there’s nothing wrong with treating yourself well, including the occasional splurge, be sure to increase your savings—including using catch-up provisions that enable those age 50 and older to contribute more to their employer-sponsored and tax-deferred savings plans. “This can really help you increase your retirement savings,” Ward says. To ramp up your savings further, consider opening a Roth IRA. With a Roth, if you are income eligible, you contribute after-tax dollars that benefit from tax-free compounding in your account, and you pay no income tax when you withdraw the money in retirement. Remember that a key retirement goal is to maintain your lifestyle. Adopting a costlier lifestyle in your 50s could make it harder to have the life you want when you retire.
Misstep: Mistiming Social Security
Social Security is a cornerstone of most Americans’ retirement plans. But when you choose to claim benefits can make a big difference in the amount of money you receive each month. According to the Social Security Administration, although you can start collecting Social Security at 62, you’ll receive just 75% of what you’d get each month by waiting until the full retirement age (66 for those born between 1943 and 1954), assuming you've paid the full amount of Social Security benefits during each year of your working career.* Source:
Social Security Administration, 2016
What to do about it
Consider delaying benefits, if you can
Assuming you don’t need the income right away, delaying could give you added assurance that you’ll have the money you need for a long retirement. Wait until age 70, and your monthly benefit will be 76% higher than if you start at 62. Other factors, such as previous marriages or whether you have a disability, also affect the benefits you receive—so be sure to fully research your personal benefits before making decisions.
Addressing these missteps will help, but don’t stop there, Ward suggests. Review and update your plan often, and keep abreast of changes, such as cost-of-living adjustments from the IRS that enable you to contribute more to your retirement plans. And don’t forget to seek guidance. Says Ward, “It’s always a good idea to check in with your financial advisor regularly concerning your retirement strategy.”
Counted in decades, not years, modern retirement feels like a whole new lifetime. Call it Retirement 2.0. How will you spend it? Travel? Volunteering? Mastering a new skill? The possibilities seem endless.
Making the most of Retirement 2.0 requires a new level of thinking and planning. The most basic advice remains: Save—as much as you can, starting as early as possible, so you can benefit from compounding interest. Beyond that, crafting a specific retirement strategy depends on what you want to do.
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