Article Library

A sluggish economy and slowly recovering personal portfolios have some investors wondering whether they'll ever retire. According to the Fall 2012 Merrill Edge Report^TM, 67% of those surveyed admitted to concern that they might not be able to afford the lifestyle they want in retirement. And over half (56%) said they would retire later than they had planned even a year ago. "The best way to deal with the uncertainty is to put a process in place," says Debra Greenberg, director, IRA product management, Merrill Lynch. She suggests adopting a four-step strategy to help you pursue a secure retirement.

Planning can make a big difference to your retirement. Four steps — envisioning your future, determining its cost, bridging the gap between what you have and what you'll need, and monitoring your progress — can help you pursue the retirement you want.

These four steps can help you chart a steady course that helps put the worst of your retirement fears to rest.

Not every detail of your retirement needs to be nailed down, but the answers to a few key lifestyle questions are vital:

• When will you retire?
• Do you expect to work part time?
• Will you live in your current house or move to something smaller?
• Will you travel?

"Your vision should include buy-in from your spouse or partner," Greenberg says.

Your present budget can help you project future expenses, though you'll need to factor in higher health care costs and the cost of long-term care. With greater longevity and rising health care costs, retirement is growing more expensive. You will likely need to fund Medicare and supplemental plan premiums, in addition to co-pays and deductibles. This is in addition to paying for services not covered by traditional Medicare, such as vision, dental and long-term needs. The Merrill Edge® Retirement Evaluator can help you get a clearer picture of your retirement income sources, including 401(k)s, IRAs, pensions, Social Security, part-time employment and annuities.

If there's a gap between what you have and what you'll need, either bump up your savings and investments or consider adjusting your future plans. To start, maximize tax-advantaged retirement accounts such as IRAs or employer sponsored 401(k)s, contributing at least enough to capture any company match. Investors age 50 or older can also make additional "catch up" contributions to 401(k)s and to traditional/Roth IRA as noted in the chart below:

Next, scrutinize your budget for costs you could eliminate without significantly affecting your lifestyle. For example, order coffee instead of a latte; drive to your next vacation destination rather than fly; or ask service providers for better deals by consolidating your phone, cable and internet services. If you're willing to take bigger steps, consider moving to a smaller home or to a state with lower taxes, Greenberg advises. (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming don't have personal income tax. New Hampshire and Tennessee have limited income tax on individuals, taxing only interest and dividend income exceeding certain amounts.) Finally, build an income plan that includes both accessible cash for short-term expenses and a long-term diversified portfolio invested for growth potential to beat inflation. This can help you gradually replace your short-term reserves without being forced to sell securities when the market is down.

It's tough to manage money you can't easily see. Consider simplifying your financial picture by rolling over any 401(k) accounts from previous employers or IRAs to one place. "You might have a plan that's completely out of balance as the result of market movements," Greenberg says. "Put it front and center so it gets the attention it deserves."

As you move into the home stretch, aim to conduct a thorough review at least every six months to assess your progress. Your plan should be adaptable so you can adjust it as needed. For example, if you dream of cruising the Mediterranean and traveling the country in an RV but aren't sure you can afford those things, consider postponing retirement for several years. That way, you may be better able to afford to live the way you want once you retire. "You can still drive toward these goals or dreams," Greenberg says. "You just might have to adjust the timing."

The links below may prompt you for your client ID and password.

• Check out the Retirement Evaluator to help you see where you stand in your current retirement planning.
• Learn more about managing your cash flow in retirement.