Imagine you are a 55-year-old living in San Diego or Sacramento and suddenly realize your retirement savings simply might not be enough. Sound familiar? However, you are not alone in this. Thousands of Californians are in the same boat, struggling to figure out their retirement by themselves without professional help.
The major problem here is that California’s cost of living is not getting any cheaper. Between sky-high housing charges and healthcare costs that keep increasing every year, saving for retirement may seem like a challenge. Additionally, here’s what makes it even more complicated: many people do not have access to California retirement advisors who can help them have a smoother ride.
Maybe you have thought of getting professional advice, but did not know where to begin, or perhaps the rates were too high. Whatever the reason, the reality is that navigating retirement planning without any guidance often leads to costly mistakes. There is a significant gap in what you need for a comfortable retirement and what you may actually be prepared for. This gap is not about money; it’s about knowledge, strategy, and guidance.
The Retirement Planning Gap
People aged 50 or older are nearing the final stretch of their retirement planning. Regardless, over 62% of this population has never consulted a retirement advisor, according to an AARP survey. One of the major reasons for this is that most people believe they can handle it themselves or leave it to someone in the family, or believe they do not have enough funds for an advisor.
This lack of planning is particularly concerning since over 56% of retirees end up retiring earlier than they originally planned. This potentially leaves them with less time to accumulate enough funds than they thought they had. This creates a disconnect between the financial needs of aging adults and the professional guidance they receive to manage their needs, also called the retirement planning gap.
The stark difference between when people plan to retire and when they actually do is what makes the difference. Research from the Transamerica Center for Retirement Studies shows that while the expected retirement age for employees over 50 is nearly 67, most retire sooner than they planned, and only seven percent do it later than expected. This unexpected early exit often cuts the wealth-accumulation phase short, leaving many with less savings than anticipated.
Financial Instability and Poverty
Many people who are approaching retirement are facing uncertain financial futures. Pre-retirement households from the retiring generation typically have just $40,000 saved for retirement, which is only enough to cover two or three years of living expenses in California, let alone to provide them with a comfortable lifestyle once retired.
Many lower income earners do not have access to a company-sponsored retirement plan and are not aware of the small amount of potential annual income that their current retirement savings can generate. The fact that they work for small businesses or in gig economy jobs means that many Californians still do not have access to the California 401k plan or any other employer-sponsored retirement plan.
Automatic payroll deductions and employer matching contributions make it difficult to build up a sizable amount of savings. Consequently, the only way for many of these people to find IRAs or other types of retirement accounts will be to figure it all out themselves without any assistance from California retirement advisors.
The average balance for working-class households is near zero, which means nobody has anything saved specifically for retirement. Among them, those who do have savings fall drastically short of what is needed in reality.
California Specific Retirement Challenges
Retiring in California is not as straightforward as many of you may think. While most retirement planning centres on averages across the United States, and while those numbers may help you understand how much money you will need for retirement, California residents see very different realities than those living elsewhere in the country. State income taxes continue to be a reality for California retirees and can significantly dent the amount of disposable income a retiree will have to live on; this is because all distributions from traditional IRAs, 401(k)s, and pensions still get taxed at California state income tax rates.
The next challenge for California retirees involves housing equity: many retirees rely on home equity for their retirement savings; however, it may take a long time for retirees to convert that asset into sustainable income, depending on when they choose to sell their homes and how much they sell them for. In addition to these barriers, many retirees will need to tap into their assets to help pay for the ever-increasing cost of private health insurance before they qualify for Medicare (when they turn 65 years old).
Another common challenge is a false sense of security. While seeing a six-figure retirement balance can feel reassuring, without sustainable withdrawal rates, tax exposure, and longevity risks, this sense can just be a facade.
Many retirees also believe they may work longer if necessary. However, frail health, responsibilities, and unexpected layoffs often force retirement earlier than planned.
What Retirement Planners Can Help You With
In addition to the financial ramifications of failing to secure an adequate retirement plan, it can also take a toll on one’s emotional well-being. As you get closer to retirement, you may feel overwhelmed by the uncertain future or fear that you will make an unwise and irreversible mistake, and as a result, you do not take action quickly enough.
Many people misunderstand what a retirement advisor does; they tend to think they are an investment advisor only. Comprehensive retirement planning is about all the parts of your financial life coming together – providing you with income for the rest of your life from multiple sources, managing your tax situation over several decades of retirement, determining how to take money out of your retirement accounts, and ensuring that your financial decisions align with how you want to live in retirement.
Retirement advisors assist you in creating a structure for your financial life, help you identify blind spots in your financial life, and reduce the chance of you making an expensive mistake. Their purpose is not to take away your personal responsibility; instead, they provide you with the information you need to make informed decisions at one of the most significant financial transitions of your life.
Barriers and Recommendations for Professional Help
One of the challenges is the structure of the financial industry, which could make future retirees hesitant to pay for advice on their current low retirement accounts. Additionally, financial professionals usually earn a greater commission serving a higher net worth client, while those with fewer assets suffer.
Yet, lower-income or lower-asset clients do not have to hesitate to seek professional advice. Financial planning should be accessible for everyone, regardless of their accumulated assets.
Some financial planners charge based on their hourly rate or a flat fee basis, like PWR Retirement Group. Here’s how you can access budget-friendly strategies that serve your purpose:
Alternative Fee Structures: Some planners offer hourly or flat rates instead of commission-based services, making advice more accessible for those with lower assets.
Professional Standards: You can watch out for Certified Financial Planners (CFPs), like ours, who are trained in holistic financial planning and a fee-only structure, who do not work on commission.
Personalized Plans: Retirement planning is not the same for everyone. Thus, it is crucial to look for plans that suit your goals and include strategies that serve your daily purpose.
Bottom Line
Owing to the rising cost of living and a general hike in prices in California, be it healthcare, rent, or housing, retirement planning has become a crucial element that people often struggle with. Thus, when approached without a California retirement advisor, holistic planning can not only be overwhelming but also often lead to costly consequences and several missed opportunities.
Therefore, understanding how an advisor can help you is an important part of how you live post retirement. Reports suggest that without help, over 30% seniors in California cannot afford basic needs. Many face high poverty rates, unsustainable debt, and an inability to manage long-term risks. Thus, work with planners who understand your situation and plan accordingly so that your goals and sustain your life with security.
