Nearing Retirement

As you approach retirement your goals—and the resources you’ll need to achieve those goals—come into clearer focus. It’s now possible to develop a viable plan that can help you make realistic projections about how much you’ll have in retirement and what you’ll be able to spend.

We recommend that you plan on being able to replace between 60% and 80% of your pre-retirement annual income to maintain your lifestyle in retirement. While some of that will come from other sources, like Social Security, most will come from your retirement savings. To help with your planning, we have developed an interactive Retirement Income Calculator to help you determine how much you need to invest annually to accumulate enough assets to reach your goal.

• Investing for Your Retirement Goals
• Choosing a Retirement Date
• Five Things to Think About
• Where to Keep Retirement Assets
• Use an Asset Allocation Strategy to Help Manage Risk
• Phasing Into Retirement
• Employ a Tax-Smart Withdrawal Strategy

T. Rowe Price provides a range of products and services to help you invest for retirement. Review the following options to see which may fit your needs best:

• Both the Traditional IRA and the Roth IRA allow you to save for retirement while deriving tax advantages. If you qualify, you may be able to make tax-deductible contributions to a Traditional IRA, tax-free withdrawals from a Roth IRA, or convert your Traditional IRA to a Roth IRA.
• Rollover IRAs may be appropriate for those who might be changing jobs, retiring, or deciding what to do with money left in a former employer’s retirement plan.

Our Retirement Income Calculator can help you decide how much you’ll need to save to meet your goals and how long your savings are likely to last.

T. Rowe Price offers Advisory Planning Services to assist those saving for retirement, approaching retirement, or already retired, as well as those just seeking a thorough evaluation of their overall investment portfolio.

This will depend upon how much you have already saved, any other sources of retirement income you may have, your financial goals, and your current work situation.

• Review. This is an important decision, so it’s best to start with a quick review of your current financial status. To estimate how much money you’ll need for retirement, use the Retirement Planning Worksheet. You should also check your estimated Social Security retirement benefit. The Social Security Administration mails you a benefit statement approximately three months before your birthday each year. Visit ssa.gov for more information. If you have a pension plan, ask your employer what your expected benefit will be and when you are eligible to start receiving that benefit.
• Financial goals. What are your financial goals for retirement? Your current lifestyle should serve as a pretty good guide. Financial planners suggest that you should expect to spend between 60% and 80% of your pretax income in retirement.
• Work consideration. More than ever, people are considering phasing into retirement gradually or exploring part-time employment. This may be a good option if you started saving later and are looking for a way to supplement your retirement income. You might want to consider delaying retirement for a few years, allowing you to continue to contribute to your retirement savings and to give them more time to grow.

As you approach retirement, here are some important things to consider:

1. The potential length of your retirement
2. How inflation can impact your savings
3. The need for cash reserves
4. How your investment focus and style may change
5. Getting help from financial experts

To understand the steps you need to take to get ready to retire, read our Retirement Readiness Guide.

An IRA can be one of the most effective ways to save for retirement. The combination of tax benefits and tax-deferred earnings can help to boost your retirement savings. You can add to your Traditional IRA for any year that you have earned income until the year you turn age 70½, at which point you must start taking required minimum distributions.

The best way to manage risk is through diversification. Remember, different asset classes offer varying potential for growth—and different levels of risk. For instance, stock funds, while offering the greatest potential for long-term growth, also tend to undergo the greatest short-term price fluctuations. Conversely, short-term investments, such as money market funds, tend to offer relatively low returns but greater price stability.

One way to pursue growth while reducing overall risk is to spread your savings among investments with different levels and types of risk and return potential. In other words, don’t put all your eggs in one basket. You can diversify by spreading your savings among stocks, bonds, and money market/stable value investments, or you can invest in a variety of different investments in one category, such as large company stocks and small company stocks or investment-grade bonds and high-yield bonds. Of course, diversification cannot assure a profit or protect against loss in a declining market.

A phased retirement offers the opportunity to work part time or on a flexible schedule, rather than retiring entirely from your job or career. This strategy may allow you to make additional contributions to your plan or put off the time you begin making withdrawals. It might even lead to a new career.

1. Consult with your employer. If you’re interested in making a subtle change, find out if your current employer does, or will, offer a phased retirement program. Companies eager to retain the expertise of long time workers have been increasingly flexible in transitioning the workloads of their older employees. Even if your company has no formal phased retirement plan, it might be willing to work out such an arrangement on a case-by-case basis.
2. Adjust your lifestyle to your income. Consider the required annual salary needed to accommodate your phased lifestyle. If full-time employment meets your needs, you’ll have the advantage of nonmonetary benefits, such as health insurance. Part-time work, on the other hand, offers added flexibility but could impact your lifestyle, job position, or employer benefits.
3. Consider your Social Security benefits. If you decide to work when you are eligible to retire, your continued employment could affect the benefits you receive from the Social Security Administration, depending on your full retirement age. For example, if you are not yet at your full retirement age (between ages 65 and 67, as determined by the Social Security Administration) and you earn over a certain amount while collecting Social Security benefits, those benefits may be reduced. However, if you wait to take Social Security benefits until you reach your full retirement age, you will have the option of working while collecting full benefits without any reductions. Learn more about the rules on the Social Security Web site, www.ssa.gov.

When it comes to helping your retirement savings last as long as possible, your withdrawal strategy is just as important as the strategy you used to save. Generally, allowing tax-deferred investments to grow as long as possible is smart. Consider withdrawing from taxable accounts (mutual funds and individual securities) first. Although you may need to pay capital gains tax, typically the rate for this tax is more favorable than the ordinary income tax rate.

Next, tap into tax-deferred savings such as Traditional and Rollover IRAs. Use assets from a Roth IRA last, particularly if you hope to pass assets along to heirs. Although distributions are potentially tax-free, the Roth IRA offers some significant estate planning benefits.