The S&P 500 has averaged around 10% in annualized returns over the last 90 years.

But you can't plan your retirement based on best-case scenarios.

You should aim to spend around 4% of your nest egg per year in retirement, according to financial advisor Winnie Sun. That percentage can drop, however, based on several factors such as if your home isn't paid off or if you have high health-care costs, Sun said.

This strategy also assumes that you have a balanced portfolio, focusing more on bonds and cash-type investments for your short-term needs. This allows the stocks in your portfolio to grow for the future, according to Sun.

Check out this video to see a few different case studies of how much spending money you'll have if you retire on $1 million.

More from Invest in You: 'Predictably Irrational' author says this is what investors should do during pandemic Coronavirus forced this couple into a 27-day quarantine on their honeymoon cruise How to prepare for a family member with COVID-19

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Here's what your monthly budget will look like if you retire with $1 million - CNBC

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Retirement often seems like a far-off destination.

But once you hit your 40s, it's no longer the distant country you once thought it was.

On the plus side, you still have time to make some smart money moves with retirement savings.

On the minus side, saving what you'll need may be a bit more challenging than it was when you were younger.

The reason is the power of compound interest, says Elijah Kovar, co-founder of Great Waters Financial in Minneapolis.

"You don't need to invest a ton of money if you start in your 20s but if you wait till your 40s, you have to invest so much more to make up for what you didn't invest in your 20s," Kovar said.

More from Invest in You: How to get more years for your retirement buck Gen Z needs to know some hard facts about saving for retirement Here's how to keep the well from running dry in retirement

Here's the difference that 10 years makes: A 25-year-old and a 35-year-old both invest $6,000 a year. Each gets an 8% return. At age 65, the 25-year-old has $1,678,686. The 35-year-old has $734,075. Try this compound interest calculator to see what your own savings rate looks like.

Since retirement is still 20 years off or more for 40-somethings, certified financial planner Mark Brown, president of Brown and Co. in Denver, tells investors in that age bracket not to be too conservative.

"You want to over-favor equities over bonds," he said. "You have the time to ride out the ups and downs."

Here's a look at some different strategies to nail down a secure retirement.

The amount you save, no matter where you save it, is the most important factor in whether you'll have enough for retirement, says Jean Chatzky, CEO and co-founder of HerMoneyMedia in New York.

Under-saving is the top issue for people who hope to retire someday.

The answer seems simple enough. "Figure out a way to get the savings rate up, and do it quickly," Chatzy said.

Make sure your money is working for you by investing wisely. If you're not a pro when it comes to managing your money, use a one-and-done target-date fund, Chatzky advises.

These funds automatically rebalance to an investment allocation that grows more conservative as you get closer to retirement or the target date. Otherwise you can put together your own portfolio and diversify it on your own.

But the most important thing is to save an adequate amount. "People should be saving 15% of whatever they earn," Chatzky said. "If you do that consistently through your working life, you will generally have enough to get through."

Keep in mind, though, that if you missed out on saving in your 20s and 30s, you may have to ramp that up to 20% or at least try.

Here's how to turn up the heat on your savings.

"The way to get there is not to go from 20% to 30%," Chatzky said.

That could feel like too shocking a difference in what you've got in your wallet. Instead, nudge yourself upwards in smaller increments.

Michelle Jackson's retirement savings journey started when she paid down more than $60,000 in debt.

Source: Michelle Jackson

Michelle Jackson, a Denver podcaster and entrepreneur, shows how you can break some rules and still feel confident about retirement prospects.

She left a university job of 10 years. She was deeply in debt more than $60,000 when she went into business for herself. Jackson, who is in her 40s, also hopes to help support her mother.

"Culturally, it's a conversation a lot of African-American families have," Jackson said. "It's not unusual to have to help your parents with retirement.

"I want to make sure my mom has the best retirement ever."

Studies suggest you need 70% to 80% of your annual salary to have a comfortable retirement.

Dan Herron

principal of Elemental Wealth Advisors

Jackson calls her goals aggressive: She aims to save about half her income for retirement. "It's ironic, given where I started," she said.

But leaving a job when she was ready for a change helped give her the energy to mow down debt and lower expenses she'd taken for granted. While working, she paid $1,200 a year for her cellphone. She now spends $400 a year.

While working, saving 50% wasn't even a glimmer, she says. "Once you start working for yourself, you get it," she said, all the ways you can optimize your time and get the most bang for your buck.

Jackson wants people to know it's not too late to start saving in their 30s or 40s even their 50s. "OK, you haven't started," she said. "You made the decisions with the information you had." Ditch the regret and start saving.

You'll want to know how much you need to save for retirement, says CFP and CPA Dan Herron, principal of Elemental Wealth Advisors in San Luis Obispo, California.

"Studies suggest you need 70% to 80% of your annual salary to have a comfortable retirement," Herron said.

Next, figure out how much you'll need to save to provide that annual cash flow. Herron recommends using 90% to provide a cushion.

Start by calculating yourtotal income and total expenses.

If you are in the black, Herron recommends trying to allocate a portion to increase your retirement savings rate. If you truly want to play catch-up, you are looking at at least 20% more of your salary toward savings.

Another possibility: Readjust your expectations for retirement. You may need to consider a lower amount of money for retirement so you don't have to save as aggressively, Herron said.

"Look at working longer," Herron said. "The longer you work, the more time you allow your savings to compound."

Alyson Duffey, 42, doesn't think she'll be able to retire.

"I set everything up when I started in my 20s and haven't touched anything since," said Alyson Duffey, 42, who works for a Boulder, Colorado, nonprofit.

An advisor came to the organization and helped employees enroll in a 403(b) plan. Duffey isn't sure of the funds or how the money is invested. "I don't know what's normal," she said.

One thing she does know: She doesn't have much saved. "I might have $28,000 in retirement funds," she said.

"I think the retirement system is set up for a specific segment," Duffey said, meaning people in "the wealthier income brackets, people who are able to land certain jobs and aren't living paycheck to paycheck."

"It's taken me a long time to get to this point, but I make $60,000 a year, and that is high for a nonprofit," Duffey said. The cost of living in Boulder is lower than San Francisco, she says, but it is still quite high.

Duffey made one move she sees as a possible boon in retirement: She purchased a condo in Boulder through an affordable home ownership program and thinks it will be suitable for her later years.

Oliver Rossi | Stone | Getty Images

For people balancing the needs of their own kids while they help their parents, it's an issue of how to do it all.

"It's a balancing act," Brown said. "If you can't increase your income, it means you're going to work longer or live on less or say no, either to parents or to children."

Before adding your funds, make sure you can utilize all financial resources, Herron says, whether pensions or government assistance or savings.

Look to other generations in the family to help out, Herron suggests. If your kids are older, perhaps they can assist, whether taking your parents to medical appointments or helping with care.

If your kids are younger and your parents are capable, perhaps they can help with school pickups and drop-offs. It could mean a great savings on childcare costs.

If you have siblings to pitch in and help care for parents, that can help ease the financial, as well as the time, burden, Herron says.

"A team effort on both ends can have tremendous positive impact not only on financial items, but family well-being as well," he said.

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If you're in your 40s, it's time to put together a strategy to rescue your retirement - CNBC

If you earn a decent income but have trouble saving, the culprits could be the roof over your head and the car in your driveway.

Retirement savers who contribute more to their 401(k)s often spend less on housing and transportation than their peers, according to a study by the Employee Benefit Research Institute and J.P. Morgan Asset Management.

Better savers also spend less on food and drink, but housing and transportation are bigger expenses that tend to be less flexible. Once you commit to a place to live and a car payment, youre typically stuck with those expenses for a while.

It may be decisions that youre making as you are building your life that will ultimately crowd outsaving for retirement, says Katherine Roy, chief retirement strategist for J.P. Morgan Asset Management.

The researchers divided 10,000 households into three groups: the 25% who contributed the least to their retirement plans, the 25% who contributed the most, and the middle savers whose contributions landed them in the middle 50%. High savers, not surprisingly, had higher incomes than the other two groups. Middle and low savers had similar incomes, but middle savers contributed about 5% at the start of their careers while the low savers contributed about 2%.

See: What if Im in my 40s and dont have a retirement fund?

That 3 percentage-point difference in contributions is largely attributable to the lower savers spending more on housing, transportation, and food and beverage, the researchers found. By retirement age, middle savers had accumulated savings equal to twice their salaries. Low savers had accumulated about half as much.

Drivingolder vehiclesand owning amodest homeare the top two sacrifices cited in a study of Principal Financial Group customers ages 20 to 54 who contribute big chunks of their income to retirement accounts.

One of those savers is Erryn Ross, 30, of Tigard, Oregon. For several years after college, the accounts receivable coordinator lived at home and drove a beater truck, a hand-me-down from his dad. By the time he was ready to replace the truck, he had saved enough to pay cash for a new one while also maxing out his 401(k) contribution.

Ross credits his mother who drives a 2002 Honda Accord, previously owned by her father with getting him started.

She said, OK, you can either pay me $1,000 for rent, or you can put $1,000 in index funds every month, Ross says. He put the money into his retirement account.

Ross recently bought a house with his fiance, and they chose a home that cost about half of what their lender said they could afford. They figured out how much they felt comfortable spending each month and based their purchase on that amount.

I dont really need a million-dollar home here, Ross says. I just need something thats going to house the family.

Both studies have their limitations. Perhaps the biggest one is that the researchers studied only people who had access to workplace retirement plans. Before the pandemic, 55 million working Americans lacked such access, according to Georgetown University Center for Retirement Initiatives. Access makes a huge difference: AARP found that people are 15 times more likely to save for retirement if they have access to a payroll deduction plan at work.

Also see: Has COVID-19 stopped Americans from chasing early retirement? Not exactly

The researchers also didnt factor in the cost of living, which varies widely across the country. Living expenses are 46% higher in San Francisco and 86% higher in Manhattan than in Portland, Oregon, for example.

Peoples personal costs of living matter hugely as well. Someone with health problems and lousy insurance likely will have more of their income eaten up by medical bills than someone in excellent health who has good coverage. The number of people you have to support children, elderly parents, for example affects how much you can save. People with student loan debt have less discretionary income than those whose parents paid for college. And so on.

Income matters, of course. Some people save on small incomes, while others dont on large ones. But the more money you make, the easier it is to save.

Also read: The pros and cons of buying a certified used car

In other words, any number of factors such as, say, losing a job during a pandemic can affect someones ability to save.

When you do have choice, though, choose wisely. The decisions you make about the big expenses now can have a huge effect on what you can spend in retirement.

Often in our financial wellness programs, we lead with, You need to have a budget or Dont have that Starbucks SBUX, +0.07% cup of coffee, Roy says. I think its more fundamental than that.

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The two things that are most likely wrecking your retirement savings - MarketWatch

Heartfelt goodbye for retiring Sarasota officer

Kimberly Kuizon reports

SARASOTA, Fla. - Retired Sarasota Police Department Sgt. Eric Bolden received a heartfelt 'thank you' from officers, co-workers and friends Tuesday upon his retirement.

Bolden served 30 years with the department. He became a role model and dedicated his life to kids and the community.

"You've been a role model and a mentor to so many," said Chief Bernadette DiPino. "You'll never know all the lives you impacted, but you impacted a lot, keep doing what youre doing and I wish you all the best."

From a young age, Bolden had his sights set on the uniform.

"I was that kid that always wanted to be a cop. I was the kid that always went up to cops and asked them what does this do, what does that do," he said.

Bolden has seen the good and bad along the way. Watching the country divide over law enforcement has been the hardest.

"I feel sad about it, but I know there can be changes. There does need to be changes, all the stuff with defunding the police departments, thats a little crazy and a little radical," he said.

Bolden has seen it from both sides.

"All of the rioting and the looting, I dont agree with it at all, but I understand the frustrations of some. I understand the pain over the course of my career as an African American and a law enforcement officer, Ive experienced it myself. So I understand," said Bolden.

Bolden knows there's a lot that needs to be done to bring communities together. He believes it starts with the moment the badge is pinned on.

"I always have believed in the quote from Martin Luther King, Jr. that, 'every man can be great because every man can serve.' I did this job for 30 years because thats what I wanted to do, I wanted to serve the public," said Bolden.

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After 30 years of service, retiring Sarasota officer offers perspective on police relations - FOX 13 Tampa Bay

As I spent my childhood playing on the shores of the Clyde River in Scotland, I watched ships as they headed eastward to sea. Where were they headed? What lay at their destination?

I did not know that halfway around the world was another child harboring similar questions as he stood near the shipbuilding yards on the Columbia River in Vancouver. We two were destined to meet in Canada where we married more than 50 years ago.

Once our family was grown, our innate love of the water surfaced. Wed enjoyed recreational sailing on the Columbia River, and set our sights farther. After reading, taking appropriate classes and attending talks by others who lived the cruising lifestyle, John and I were ready to pursue our own retirement dream. We sold our home, packed our car and began a two-year sailboat search.

We found her in Texas, renamed her Pacific Rose and began our quest to find paradise.

One afternoon, under a cloudless blue sky, we anchored off Sand Dollar Beach by Georgetown, Bahamas. I stood at the bow, clearly seeing scattered wisps of green grass swaying on the white sand floor about 10 feet below. John was swimming along to check that the anchor was holding fast. Pacific Rose swayed gently with the current under the bright sunshine.

We planned to spend the afternoon tending to boat chores. Having raised the dinghy onto the deck, John was using a felt pen and letter template to refresh the registration numbers on each side of its bow. I was going to soak the dock lines, which had become soiled and salt-hardened during our travels.

John glanced across the deck, adjusting his eyes from the effects of the glaring sun to the shaded cockpit. It surprised him to see my derriere in the air, toes clutching the cockpit floor. The rest of me was slung over the edge of the starboard storage locker, my arms stretching downward into the space below.

My fingers almost reached the pail that rested on the floor of the locker. I was attempting to grasp the handle in order to lift it onto the deck so I could go ahead with soaking the lines.

Nan, for heavens sake, let me do that, shouted John, who is over a foot taller than me.

Its OK. I can reach it, I said.

But you cant, he said knowingly.

Yes, I can, was my assertive reply.

Confident and determined, I suddenly banged my elbow against the lever on the fire extinguisher attached to the side of the locker. Unbeknownst to us, the safety pin was not replaced when the extinguisher was last serviced. Before either of us could utter another word, the inanimate fire extinguisher spouted to life. It spewed forth a fine talc-like substance, covering everything stored in the locker: lines, pail, bosuns chair, tarp and miscellaneous marine equipment and supplies.

Of course, I was not immune. I grabbed the edge of the locker, pulled myself to standing position and turned to John with white face and prematurely white hair.

I guess I couldnt, I quipped.

We spent the rest of the afternoon emptying the storage locker, wiping down its walls and contents before neatly replacing each item. We were pleased about one thing: We knew the fire extinguisher worked. Now all we had to do was have it recharged at the marine supply store down island.

And so it went, one of our many adventures in paradise.

Everybody Has a Story welcomes nonfiction contributions, 1,000 words maximum, and relevant photographs. Send to: neighbors@columbian.com or P.O. Box 180, Vancouver WA, 98666. Call Everybody Has an Editor Scott Hewitt, 360-735-4525, with questions.

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Everybody Has a Story: They retired with two tickets to paradise - The Columbian

Uncharted territories are difficult to navigate, but what if you had the ability to do a test run for one of lifes most important milestones retirement? This pandemic has been just that in more ways than one.

Families, schools and businesses have been left feeling whiplashed by the efforts of government and officials as they close, re-open and re-close aspects or our economy and our daily lives. The global pandemic has tested our true grit on so many levels as a nation and economy.

It is also shining a spotlight on many of the areas where we have done a good job at preparing for retirement andsome areas that still need some work.

As the saying goes, the show must go on. The good news is if youre not retired yet, then theres still time to make some changes.

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You may be finding yourself working on various home projects, taking on new hobbies, or reviving old ones during the lockdown. What has been your experience? Maybe the initial thought of a wide-open schedule and an unplanned day sounded exciting, but it turned out to be unfulfilling and boring. Or maybe it was heaven.

Figuring out what to do with all the extra time youll have during retirement to live a purposeful and meaningful life is just as important as figuring out how youll allocate your money.

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As a result of the shutdowns and stay-at-home orders, families and loved ones had nowhere to go and were forced to spend more time together. This presented a unique opportunity for families to find meaningful engagements in relationships that were often pushed aside or hurried as a result of everyday life demands. On the flip side, coronavirus has amplified problems between some couples as theyve been stuck in close quarters and forced to confront compatibility issues and navigate the unique problems of the pandemic. In fact, divorce rates have skyrocketed amid coronavirus, and 31% of couples admitted the lockdown has caused irreparable damage to their relationships.

Stress levels will hopefully not be as high during retirement as they are now, but couples should similarly expect more time spent together and garner a sense of what that means for their future whether positive or negative.

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With the economy shut down and many areas faced with stay-at-home orders, weve been forced to hunker down and focus on what we need to survive. The common epiphany shared by many is that, well we dont really need all that much. You probably noticed that besides food, housing and utility costs, there wasnt much else you needed.

If you were lucky enough to transition to telework, your transportation costs likely declined. And shopping for business attire and dry-cleaning bills? Those costs likely plummeted as well. There are expenses that may well increase in retirement like medical bills so take this time to note how your spending has changed throughout the pandemic. It should give you a good indication of what you really might need to get by in retirement.

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This pandemic has also highlighted more than ever the importance of having a cash cushion for emergencies. When an unforeseen expense occurs, its best to have three to six months worth of expenses in a liquid account. This is no different during retirement.

Its especially helpful to have a cash cushion when your investment accounts take a dip and youre best off pausing distributions from these accounts. Being dynamic with your distributions and temporarily bridging expenses from savings will allow your portfolio time to recover.

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Whether youre furloughed, searching for employment or are a business owner re-working your strategy, youve probably been forced to look at how long you can manage all your bills, given how much you currently have. Although not an exact science, calculating your retirement is much like that.

Regardless of whether youre living off a 401(k), pension, Social Security and/or investment income in retirement, youll need to weigh your current investment income plus expected future income against your annual expenses.

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If youre nearing retirement, this last bout of market volatility probably made you acutely aware of how market shocks can impact your carefully laid-out plans. It likely also underscored the importance of managing risk as you get closer to retirement.

Luckily, weve seen a rapid recovery in the markets this time but take this opportunity to revisit your portfolio allocation to make sure that your risk is aligned with your goals and time horizon. Sometimes there are no second (or third) chances.

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Being flexible and able to adapt to the worlds uncertainties is always a great strategy. Having the ability to pivot and re-tool their finances is helping individuals, families and businesses survive right now. Everyones path to retirement looks different. But a test run is one thing that will certainly help you run the show as you get closer to that date.

Wealth Adviser, Halbert Hargrove

Julia Pham joined Halbert Hargrove as a Wealth Adviser in 2015. Her role includes encouraging HH clients to explore and fine-tune their aspirations and working with them to create a road map to attain the goals that matter to them. Julia has worked in financial services since 2007. Julia earned a Bachelor of Arts degree cum laude in Economics and Sociology, and an MBA, both from the University of California at Irvine.

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6 Ways the Pandemic Has Been a Dress Rehearsal for Retirement and How You Can Take Advantage - Kiplinger's Personal Finance

Early retirement sounds like a great idea if you picture having ample cash to travel the world or hang out at the beach. But in reality, retiring before your mid-60s could cause a whole host of financial consequences that affect your ability to enjoy your later years to the fullest.

In fact, here are three big reasons early retirement could end up being more hassle than it's worth.

It's stating the obvious, but the earlier you stop getting a paycheck, the sooner you must start relying on your investment accounts (and the sooner your balance starts to fall). Not only do you begin making withdrawals earlier when you retire younger, but you also lose some prime investing years when you're eligible for catch-up contributions and may be able to afford to make them.

The consequences can be far-reaching. If you maintain a safe withdrawal rate, you may limit your opportunities to enjoy retirement because your income could be too small. But if you indulge your retirement fantasies by taking out too much money too early, you could run out of money later in life when healthcare expenses rise, and working to get back on track is impossible.

If you claim Social Security prior to full retirement age (FRA), you're subject to early filing penalties that reduce your benefits.

And even if you can retire early without starting your benefits ahead of your FRA, you could still see less lifetime income. The problem comes from the fact the Social Security Administration bases your monthly checks on average wages earned during the 35 years when your earnings were highest (after adjusting for inflation).

If you don't work 35 years, your average wage will be lower due to the inclusion of years with no wages. And even if you manage to work 35 years, chances are good you'll be leaving the workforce when your salary is higher than at the beginning of your career. By quitting when your salary has peaked, you miss out on the chance to replace lower-earning early years in the calculation of your average wage.

If you're retiring early, that almost guarantees you're leaving the workforce well before 65, when you become eligible for Medicare. And that can be a big problem because you can't afford to go without health insurance.

While maintaining your employer-provided coverage through COBRA should be an option, as is purchasing an individual insurance policy, chances are good your premiums will be pretty high especially if you're used to your employer subsidizing coverage. If you buy an individual policy instead of sticking with a group plan, you're also likely to have higher deductibles and co-insurance costs than you're used to.

The extra costs can quickly eat into your retirement savings, which can mean your account balance falls even faster or you have less to spend on other things. And that, combined with the possibility of lower Social Security benefits, plus the fact you'll be living on your savings for longer, can be a recipe for financial disaster.

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Early retirement sounds like a great idea if you picture having ample cash to travel the world or hang out at the beach. But in reality, retiring before your mid-60s could cause a whole host of financial consequences that affect your ability to enjoy your later years to the fullest.

In fact, here are three big reasons early retirement could end up being more hassle than it's worth.

It's stating the obvious, but the earlier you stop getting a paycheck, the sooner you must start relying on your investment accounts (and the sooner your balance starts to fall). Not only do you begin making withdrawals earlier when you retire younger, but you also lose some prime investing years when you're eligible for catch-up contributions and may be able to afford to make them.

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Looking to retire early? The move has its drawbacks, here are 3 to consider. - USA TODAY

Im approaching retirement, and the turmoil in the markets this year has me thinking, for the first time, about buying an annuity. I like the idea of predictable income, but I dont like the idea of handing my money, permanently, to an insurance company. What do you think about a person building his or her own annuity? Is there a good way to do this?

Yes, there are ways to create an annuity. And I think its wise to consider how an annuity might help you and your nest egg. But I think the do-it-yourself approach can be difficult for many investors and carries some sizable risks.

To start, Ill focus on the product you seem to be considering: an immediate fixed annuity. In other words, you hand a lump sum to an insurer, which, in turn, guarantees you a monthly paycheck for life. Period. (Well save, for another day, talking about more-complicated products, such as equity-indexed annuities.)

If you wish to build something resembling an immediate fixed annuity, you could, for instance, assemble a TIPS ladder, a collection of Treasury inflation-protected securities of various maturities. Or you could construct a bond portfolio with high-quality corporate and municipal bonds. Both approaches would produce a predictable stream of income.

Even something as simple as a balanced mutual fund, one with a mix of stocks and bonds and a long history of solid returns, could, in theory, serve as an annuity. A good example: (RPBAX) has posted an average annual total return of 9.46% since its start in 1939.

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Pros and Cons of a Do-It-Yourself Annuity in Retirement - The Wall Street Journal

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For many workers, a traditional retirement is not part of their plans.

Among baby boomers still in the workforce, 59% expect to keep working into retirement, a new study from Voya Financial shows. For Generation X, that share is 60% and for millennials, 49%. Overall, 54% of all workers say their retirement years will include a job of some sort.

"The definition of retirement is evolving and will keep evolving," said Charlie Nelson, CEO of Retirement and Employee Benefits for Voya. "It's not going to be about working until a certain age and then switching to no work."

More fromInvest in You: How the pandemic upended Americans' finances: CNBC + Acorns survey For many, $1,200in stimulus never came. These tips might tell you find why Remote schooling this fall will have a negative financial impact on families

The study, based on a survey of about 1,000 people done in waves from March through July, explored workers' attitudes about retirement during the pandemic. Voya defines baby boomers as those born 1946 to 1964; Gen X, 1965 to 1980; and millennials, 1981 to 1996.

The results come as economic uncertainty from the pandemic persists and unemployment remains relatively high, at about 10%. At the same time, however, the stock market despite dropping in Thursday morning trading is far above its lows earlier in the year.

The S&P 500 index closed Wednesday at 3580.84, up 60% from its March 23rd low of 2237.40. The Dow JonesIndustrial Average has gained 56.5% since bottoming out in March at 18,591, closing at 29,100.

Many respondents (56%) noted their reasons for wanting to continue working in retirement included for their mental well-being, while 40% said it's because they want a safety net to cover unexpected costs and prepare for market volatility.

"There may be financial reasons they want to keep working, or it might be because they want to stay mentally alert," Nelson said.

While the coronavirus has caused economic uncertainty and a squeeze on households that have lost income from being laid off or furloughed, Voya's survey suggests that saving for retirement remains a priority, with 55% of respondents saying they'd rather save more for retirement than be completely debt-free.

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Majority of workers expect their 'retirement' to include a job, survey shows - CNBC

Ed Daizovi, a 57-year-old career diplomat, entered the retirement homestretch earlier this year: He had just moved back from Africa and was setting up a new home in Miami where he planned to retire next year with his wife of 29 years, after investing diligently to fund a comfortable retirement.

But the coronavirus pandemicand the volatility stirred first by the markets crash and quick recovery, and now by uncertainty heading into the electionis making Daizovi wary about his retirement timeline.

If the market tumbles 30% to 50% by the time Im ready to retire next year, Im looking at one more tour in the foreign service, Daizovi says. Thats far from ideal, as it would mean having to live apart from his wife as she settles into their retirement home.

For near-retirees, the Covid-19 recession marks the second major setback in little more than a decadeand this one strikes as many are hitting peak earnings and savings years. Now, they find themselves grappling with ways to preserve their retirement securitywith fewer years to bounce back.

Preretirees are getting the wind kicked out of them, says Ken Dychtwald, head of consultancy Age Wave, of the challenges and confusion that those five to 10 years from retirement are facing. Their portfolios are taking a hit. They cant work longer with [high] unemployment. Their mom is sick, and their kids are moving back home.

Among the near-retiree set of 50- to 64-year-olds, confidence about having enough saved for retirement has fallen to 48% from 65% before the pandemic, according to a poll by Edward Jones/Age Wave released in August. And among those in this group with adult children, 28% have provided them with financial support during the pandemic, exacerbating savings shortfalls.

These concerns come at a time when some families budgets are already strained by a variety of factors, such as job losses, income cuts, or efforts to keep small businesses afloat. Almost a third of small-business owners and 8% of baby boomers said their household income had fallen by half or more during the pandemic, according to a financial-wellness survey from Prudential Financial, released in July.

On top of those immediate issues, the pandemic is stirring uncertainty around a number of other key concerns in retirement, including taxes and pensions, as governments reassess budgets and spending priorities. Investors should also reassess what their savings could generate in long-term market returns as global economic growth takes a hit and interest rates are at historical lows in much of the world.

The pandemic also has had an impact on many near-retirees who are still employed. Roughly 15% of employers have either suspended or cut matching contributions to 401(k)s, with an additional 10% considering doing so, according to a survey of 543 employers by Willis Towers Watson. And that can have an impact on overall retirement security. Among those with enough savings to fund their retirement needs, a 10% reduction in employer matches for a year along with a 10% reduction by employees in plans where the match is suspended cuts roughly 14% off the total surplus for 50- to 54-year-old workers, according to projections by the Employee Benefit Research Institute.

On an individual level, there are ways to mitigate the Covid-19 hitand not all have to be drastic. Barrons canvassed financial planners and retirement experts to see what adjustments near-retirees can make to bridge a difficult period without derailing retirement plans.

Given the health risks created by the pandemic and uncertain outlook for certain industries, early retirement may seem like an attractive option. But advisors recommend that those who are five to 10 years away from retirement should stay in the workforce, if possible.

The best way to improve retirement financial outcomes is to work longer, says Jamie Hopkins, director of retirement research at Carson Group. A year or two before retirement, we see people tighten their belts and reduce spending, but that has minimal impact versus working six months to a year longer. Indeed, 34% of 50- to 64-year-olds in the Edward Jones/Age Wave survey said that Covid-19 has changed their retirement timeline.

Of course, working longer is easier said than doneeven more so now with a spike in unemployment. While older workers typically have substantially lower unemployment rates than those 25 to 54 years oldroughly 15% to 20% over the past decadethat hasnt been the case through this pandemic, says Richard Johnson, director at Urban Institutes Program on Retirement Policy. As of July, the overall unemployment rate for those ages 55 to 64 sits at 8.7%, just 5% lower than that for younger cohorts.

Thats a troubling trend, as it has also taken longer for older workers to get rehired out of past downturns, with those 62 and older who lost their jobs only half as likely to be re-employed as people in their 30s and 40s, Johnson says.

This situation has given me a reason to take a hard look and come up with a plan B.

Advisors recommend taking a closer look at retirement savings, deferred compensation, and stock options to see if other paths to employment are feasibleincluding a job that pays benefits but doesnt necessarily provide the same level of income, or turning a furlough into a phased retirement where workers transition in steps from full-time work to full-time retirement. Workers could tap savings to set up a consulting business, hire a career coach, or get more training to pivot into a different career.

Being realistic about the changes the pandemic has brought to various industriesand how long it could take to get back to a level of normalcyis also important. Some clients hold out for an equivalent offer and spend so much time out of the workforce they end up with a two-year gap, says Jeffrey Levine, director of advanced planning at Buckingham Wealth Partners. Then they are even older, and it becomes even harder to get back in the workforce.

Finding a job could take time, and even those who have emergency savings may be running low nearly six months into the crisis. Yet the sharp stock market rebound from the March depths and historically low interest rates offer an opportunity to replenish and expand cash cushions.

Advisors recommend anywhere from 18 months to three years of expenses in liquid assets, depending on circumstances. For those who have gotten an early-retirement package or severance, Katherine Liola, founder of Concentric Private Wealth, suggests keeping much of it liquid to generate an income stream, since it could take some time to secure another job.

For small-business owners near retirement, having a cash pile is paramount, given the pandemics impact on many companies revenue and sale valuations. Some advisors recommend that business owners have two years of cash on hand to keep operations going until conditions return to more normal levels, enabling them to possibly sell the business. That might mean cutting expenses, negotiating with vendors, or tapping credit lines as well as any available pandemic aid.

We dont know what the recovery path looks like or the speed at which it could happen, says Brandt Kuhn, managing director at Beacon Pointe Advisors. If you qualify for [government relief] programs, take the opportunity and make your runway as long as possible.

When it comes to freeing up cash, the pandemic has upended some of the traditional ruleslike not taking on debt on the eve of retirement. With interest rates at record lows and housing prices holding up, some advisors recommend that near-retirees look to their homes as a possible source of cash.

If the rate on their mortgage is a percentage point or more than the current rate, refinancing could make sense. Would you rather sell equities in a portfolio that you expect to earn 6% to 7% or borrow from a home at 3% to 4%? Use the asset with the lowest return in the portfolio, which is home equity, Hopkins says.

Another option: opening a home-equity line of credit that can be drawn on in increments if markets take a turn for the worse. The idea is to tap the line of credit and pay it back when markets recover.

The next best place to free up cash is through investment accounts, taking into consideration taxes and asset types for a guide on what to tap first. Here, too, the pandemic has made it acceptable, if not ideal, to break some long-held guidelines, such as not raiding a 401(k).

Policy makers have made it easier for those affected by the pandemic to do just thatand advisors say those who need to bridge an income gap should take advantage of the changes. The Cares Act allowed those affected by the pandemic to tap up to $100,000 in retirement assets this year without getting hit with the 10% penalty if they are under 59, and the act also made it easier to take out a loan of up to that same amount that can be paid back over a period of five years

Of the two options, advisors slightly favor the loan because, behaviorally, it increases the chances that the money will be replenished. If the loan is paid back in five years, there is no tax hit. And for those who opt to take distributions of up to $100,000 from their 401(k) or individual retirement account this year, taxes will be spread out over three years. But for those who manage to repay the distribution within three years, a tax credit is applied, essentially making it akin to a tax-free loan.

The determination of whether someone wants to take a loan or distribution has to be decided up front, with loans required to be paid back on a specific schedule.

Tax considerations also support use of retirement assets for those who have lost their job or had their income reduced. Savers who find themselves in a lower tax bracket could minimize taxes paid on a withdrawal from a 401(k) or individual retirement accountsomething that could become even more important when the Cares Act provisions are no longer in effect.

Source: Employee Benefit Research Institute's Retirement Security Projections

However, if someone has already made substantial income this year, Carolyn McClanahan, founder of Life Planning Partners, says that it may be better to draw from taxable accounts where the 15% tax on capital gains may be a less costly way to free up cash than paying income tax on retirement assets. Whats more, with stocks in certain sectors still down after the crash, an investor might be able to sell at a loss and take a tax deduction.

Which assets to sell first? Given the markets rise, advisors recommend taking profits in stock portfolios with the most-aggressive profiles, or rebalancing to rebuild cash cushions, if possible.

Heres one rule that has stayed largely the same: If you are in good health, try to wait to claim Social Security as long as possible. The roughly 8% increase in benefits each year a worker delays claiming through age 70 is difficult to match elsewhere. Plus, the payout is for lifeso the bigger it is, the betterand tapping it early can have ripple effects for the surviving spouse.

The pandemic is the type of event that calls for introspectionand that holds for finances, as well, with advisors encouraging clients to re-examine their risk tolerance and long-term return projections. Near-retirees should also use this time to consider how they want to be cared for as they age, and their expectations about pensions and taxes.

Indeed, nearly a quarter of older Americans said the crisis had caused them to reduce their risk tolerance for the long term, according to a June survey of 56- to 75-year-olds with at least $100,000 in investible assets by the Alliance for Lifetime Income, a group focused on educating the public about annuities and promoting them as a tool for retirement income.

The pandemic has upended the plans of many near-retirees

One place to start a reassessment is with a look at asset allocation. For near-retirees who have lost jobs or are worried about layoffs, McClanahan has been encouraging them to shift closer to a 50/50 stock and bond portfolio, taking advantage of recent market gains to rebalance. For those under 59 who may need to rely on nonretirement assets next year, McClanahan recommends an even more conservative allocation in the taxable brokerage account, if it needs to be used as a bridge after this years Cares Act provisions expire.

The unprecedented amount of stimulus pumped into the global economy also means that investors should take a closer look at the safer, fixed-income part of the portfolio, as some bond funds have suffered double-digit losses.

Preretirees are getting the wind kicked out of them. Their portfolios are taking a hit. They cant work longer with [high] unemployment. Their mom is sick, and their kids are moving back home.

Some advisors favor bond ladders once clients are beginning to tap portfolios, rather than bond funds, to minimize volatility, especially as many funds have veered into riskier assets to generate returns. The premise is simple: buy bonds that mature in different increments with the intent of holding them to maturity, collect interest income along the way, and replenish with new bonds as old ones roll off.

Other advisors, like Jason Fertitta, head of registered investment advisor Americana Partners, are wary of exchange-traded bond funds whose sharp losses could precipitate selling from investors, exacerbating possible pain for investors. Of all the asset classes, fixed income is the one you need to be most careful in, he says.

Given all the easy money being pumped into the global economy, Fertitta says he has turned more defensive and sees a case for a longer-term inflation hedge by increasing clients exposure to real assets like real estate to 10%-15% from 3%-5%. My biggest concern is that the levers the Federal Reserve is having to pull to keep this market going is very experimental, and we dont know when inflation is coming, he adds. We have to put in some assets that could benefit from inflation. Real assets historically were a small part of the portfolio, and we are certainly open to that being a larger piece.

Near-retirees are also rethinking another risk: their long-term care plans, with the Edward Jones/Age Wave poll showing that the pandemic prompted almost 30 million Americans to have end-of-life discussions for the first time.

The pandemics toll on nursing homes and other congregate-care facilities has further increased near-retirees preferences to add at-home care to their retirement planning, Hopkins says. Such care isnt cheap: A home health aide can range from $150 to over $350 a day, with Genworth Financial estimating $50,000 a year for a home health aide working a 44-hour week, and rising to an average $150,000 for full-time care.

The trillions of dollars being spent to help the economy out of this recession means that investors should also reassess expectations for pensions and taxes. Many state and local governments were already struggling financially, but the crisis has exacerbated the situation, and pension funding levels are forecast to take another hit, says Olivia Mitchell, executive director of the Pension Research Council and a professor at University of Pennsylvanias Wharton School of Business. Among the most precarious are states such as Connecticut, with a funding level of just 28%, and Illinois, at 20%.

The fallout will take timeand a lot depends on Congress and what it does to deal with local governments fiscal distress. As of now, many states have constitutional provisions that require pensions to be paid in full, but Mitchell notes that the bankruptcies of Puerto Rico and cities like Detroit brought pension cutsa 4.5% haircut in Puerto Rico and the elimination of the cost-of-living adjustment in Detroits case. Congress would have to change laws for states to declare bankruptcy.

Barrons brings retirement planning and advice to you in a weekly wrap-up of our articles about preparing for life after work.

Still, the potential hit to pensions is enough for planners like Jody DAgostini at Equitable Advisors to be cautious. She bakes in a reduction in expected pension payments for clients, and takes a conservative approach to Social Security that factors in no cost-of-living adjustment and a 20% to 25% reduction in benefits for wealthier clients who could be the first to see a reduction.

Then there are taxes. At some point, the bill is also going to come due for the trillions being spent to help the U.S. economy. If taxes have to double because of the fiscal hole we are in, that does tend to threaten peoples planning, Mitchell says.

The November election could offer some clarity, but for now, advisors are stressing diversification, including adding to Roth IRA accounts if possible, as well as tax-efficient investments like municipal bonds. As the postpandemic world becomes clearer, the name of the game for near-retirees will continue to be flexibility.

For the diplomat Daizovi, the stock market rebound has provided an opening to sell some of his positions and build a bigger cash buffer, so he can follow through with his original retirement planand still have some money to buy stocks when the market dips. This situation has given me a reason to take a hard look and come up with a plan B, he says.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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Covid-19 Was the Second Major Setback for Near-Retirees. Heres How to Get Your Plan Back on Track. - Barron's