Like many Americans, you may have put money into a 401(k), 403b, Roth IRA, or some other investment vehicle with the hope of one day enjoying your retirement. But just saving money for a later date isn't enough. Determining whether or not your plan will allow you a comfortable retirement requires a critical look at several important variables.
Know your ideal retirement
Does your ideal retirement life look a lot like the one you have now? Or would you want to do more of the things you may have put off for years like traveling? Alternatively, you may crave the idea of an earlier retirement even at the expense of a lower standard of living. There's no right or wrong answer, but your anticipated retirement lifestyle is a critical component in answering the "How much do I need to save?" question.
Consider your life expectancy
It is important to select a realistic life expectancy based upon gender, age, and family history. You will want to be conservative on the estimated years you will spend in retirement. This is because no one knows for sure how long he or she will live and it's much better for your money to outlive you, than for you to outlive your money.With life expectancies constantly increasing, it is possible that you will spend more years in retirement than years you spent working.
Account for rising costs
The government's official measure of inflation (CPI) shows low to moderate inflation now and going forward. But if you ask a current retiree, they will give you a much different story. Retirees spend a large portion of their income on food, energy and health care, these three areas have seen much higher than average inflation over the past decade and it doesn't appear that this will change for the better any time soon.
Health care considerations
- Health problems and health care premiums increase with age.
- Industry experts predict that medical costs will rise around 15 percent annually.
- A 2010 Fidelity Investments study indicated that a couple retiring in 2010 will need approximately $250,000 to pay medical expenses in retirement.
- The Wall Street Journal states, “A couple turning 65 has a 75% chance that one of them will need long-term care.” At an average monthly cost of a nursing home in Ohio running $6,000 per month, planning ahead for this reality is a very important aspect of any successful retirement plan.
Determine your retirement date
- Assess your current financial position. Contact your financial professional to complete a net-worth and cash flow statement.
- Consider retiring later than previously expected, or taking on a part-time job. The longer you work, the more time you will have to continue saving for retirement.
- Find out when you will be eligible to start receiving your various retirement income sources like pension, social security, and retirement account withdrawals.
Consult a financial professional
In a 2006 Employee Benefit Research Institute Retirement Confidence survey, 44 percent of respondents cited "guessing" as their method for calculating their retirement needs. Retirement is too important to rely on arbitrary assumptions—a financial professional should help you with a detailed analysis of your current financial situation and future needs. Choosing a financial professional that focuses their practice on retirement can help you navigate the constantly changing legal and investment landscape. With over 90% of McCarthy & Cox's clientele over the age of 50, we have helped hundreds of families transition to retirement and maintain their financial independence.
McCarthy & Cox, Retirement & Estate Specialists LLC.
With Offices in: Marysville | Dublin
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