1. IT’S UP TO YOU: The days of employers providing guaranteed retirement benefits have faded, while the long-term viability of Social Security remains uncertain. The reality is that the quality of your retirement will be directly tied to the actions you take today and the discipline you exhibit during your working years. Your planning success will come from:
- Minimizing your debt
- Protecting yourself against financial losses
- Saving as much as you can
2. HEALTH CARE: One of the biggest expenses in retirement may be health care. Not only will health care represent a larger share of your budget in retirement, but their costs may rise faster than other living expenses. Medicare won’t cover everything, including the cost of long-term care. Recognizing this, you may want to plan for out-of-pocket medical expenses such as premiums for Medigap insurance to cover the expenses that Medicare does not, and long-term care insurance to pay for nursing and home care services.
3. PSYCHOLOGICAL PREPAREDNESS: Our careers provide us with more than just an income. They offer a sense of self-identity, fulfillment and purpose. You may think relaxing all day is the dream, but it loses its allure quickly.
Ultimately, a well-lived retirement is one filled with satisfying relationships, being fit of mind and body and pursuing personal passions. Each requires preparation well before your retirement date.
4. THE TIME VALUE OF MONEY: It is not the passage of time that erodes the value of money, but inflation through time that reduces the purchasing power of your savings.
A forty-year-old expects to retire in 25 years and has determined that $40,000 in living expenses satisfies her vision of a financially comfortable retirement. Assuming a 3% rate of inflation, she will need $125, 627 in after-tax income upon reaching retirement age in order to maintain her targeted standard of living. Said differently, the $40,000 spending target in 25 years will only provide the standard of living that $19,104 does in today’s dollar. This would represent a greater than 50% loss in purchasing power, significantly impacting her financial budget and possibly quality of life.
As individuals live longer healthier lives, retirement can stretch for up to 30 years or more so it’s important to have a plan and to cover your basic expenses in retirement with your guaranteed income sources and determine what other assets you’d like to use to cover your discretionary expenses (e.g. hobbies, travel, etc.).
2015-3775 Exp. 3/17