Living a comfortable retirement means planning for how much you will need now, when you have the ability to put away the money to do so. What is your picture perfect retirement? Are you…
• Living on a boat, seeing the world one coast at a time…
• Travelling, seeing all of those places you have imagined over the years…
• Spending time at home with your grandchildren, enjoying friends….
• Starting a business or investing more time in a lifelong hobby.
Today's retirees are doing much more than they used to….and the costs of retirement are also much different. In order to better understand how much in assets you need to accumulate (and earn in company pensions and social security), to live the type of life you want…you should know what your retirement life is really going to be like. What should you be planning for?
One of the hottest topics in retirement planning circles is healthcare. Healthcare costs continue to rise, which has put a lot of pressure on those entering retirement. How can you plan for costs that are so potentially high? For those who do not have employer sponsored health care into their retirement, they should expect to spend ~$200,000. These are today’s estimates for monthly premiums, co-pays and out of pocket expenses. This figure is based on the costs in 2008. In other words, for those who are not planning to retire anytime soon, the costs will be even higher (historically, the rising costs of medical care have grown at 5-8% per annum.)
In addition, there are additional costs to consider. As you age, the likelihood of additional costs increase for in-home services or the prospect of a residential long term care. Medicare simply does not cover most of these costs. So, does this mean that part of your retirement will be in hospitals and doctors' offices? It is likely that you will see more doctors and it is likely that you are going to face some chronic disease during your retirement. The question is, how are you preparing for the financial implications? Have you considered what changes should be made to your investment portfolio, protection planning or estate plan?
Starting A Business
Surprising to many, some people retire only to get back into the workforce, but instead as a business owner. Most people are healthy and motivated in their 50’s and 60’s and finally feel financially able to strike out on their own. Retirement does not always mean not working…perhaps just not working for someone else.
Will you start a business? Perhaps you will do some consulting. You may want to do something completely different than your current career. You may want to start or purchase a serious business. How will you finance the start-up or acquisition costs? As you can imagine, these are additional costs to meet. It is not always easy to consider what those costs may be, but planning for them now can be vitally important.
You'll Live At Home
Many studies indicate that more than ever, future retirees are considering making significant housing changes. They are planning to move into a more manageable home…or luxury living, in high lifestyle areas. Interestingly, they are more likely to look closer to home for their next living situation not out of state in traditional retirement havens such as Arizona or Florida. (Recent studies indicate that only ~5% of retirees will move out of state…were you aware that ~10% will move back within three years!)
As you consider your retirement, where you live will be a key factor in your quality of life and expenses. Whether you maintain your current home or make a significant change, you will need to consider the financial implications of whether you maintain a mortgage and ongoing property taxes, maintenance and utilities.
Supporting the Family
Regardless of how financial secure you are today, there is a real threat to that security by your children (including grandchildren) and even your parents. Many of today's younger generations are struggling with student loans, high credit card debt and mortgages…and do not enjoy the job stability of previous generations. Frankly, many of our client’s children who are in their 30’s and 40’s simply are not where they need to be financially because of a lack of discipline and motivation. In any case, these children are still dependent on their parents which may not end because Mom and Dad are retired. And those financially ill-prepared children are the financially ill-prepared parents of your grandchildren. (In our financial planning practice, more than half of our retired clients are setting aside funds for their grandchildren’s education…many times because their children cannot afford the rising cost of a college education.)
When you retire in your 60’s, your parents are likely to be in their 80’s or 90’s. Like you, they are facing the same risks of longevity (“outliving their assets”), inflation (“rising costs of daily living”) and the prospect of an expensive, long term care situation. If they are not financially prepared with a sizable pool of assets or don’t own a generous long term care insurance plan, those costs often fall on their children. This is not what most people had in mind when they were funding their 401(k) plan, but it is simply the reality in many families.
What impact does this have on you as you enter retirement? For many people, it means offering more financial support. The sentiment is often, "My parents didn't help me. I had to make it on my own.” Yet the reality is that the alternative to financial support might mean the bankruptcy of a grown child, the inability of your grandchild to secure a post-secondary education or your parents struggling to meet their basic needs…or consuming all of their assets to care for themselves in their final years.
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