"Will I outlive my retirement money?" This is one of the top fears for people who are starting to prepare for their retirement years.
Determining how much money you need in retirement is a process. It shouldn't be a number that you pull out of thin air. The process should include looking at your current financial situation and developing an approach based on your goals, time horizon, and risk tolerance. The process should take into consideration all your potential sources of retirement income, and also may project what your income would look like each year in retirement.
We all have our "perfect" visions of the way retirement should be, yet our futures may unfold in ways we do not predict. So, as you think about your golden years, you may want to consider some life and financial factors that can suddenly arise.
You may see retirement as an extension of the present rather than the future.
This is only natural, as we all live in the present, but the future will arrive. The costs you have to shoulder later in retirement may exceed those at the start of retirement. As you may be retired for 20 or 30 years, it is wise to take a long-term view of things.
If you retire before age 65, what do you do about health coverage? You may shoulder 100% of the cost. Suppose you become disabled or seriously ill, and working is out of the question. How will you make ends meet?
As it relates to fitness, you may stay fit, active, and mentally sharp for decades to come, but if you become mentally or physically infirm, you need to find people you can trust to manage your finances.
You could be alone one day.
As anyone who has ever lived alone realizes, a single person does not simply live on 50% of a couple's income. Keeping up a house or even a condo can be tough when you are elderly. Driving can also be a concern. If your spouse or partner is absent, will someone be available to help you in the future?
What are some of the blind spots that can surprise us in retirement?
Unforeseen circumstances can quickly affect our money and quality of life. If you age with an awareness of them, you will be able to manage the outcome better. Let's discuss a few of these below.
Timing Social Security.
As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for higher retirement income. Filing for your monthly benefits before you reach Social Security's Full Retirement Age (FRA) can mean comparatively smaller monthly payments.
Managing medical bills.
Medicare will not pay for everything. Unless there's a change in how the program works, you may have a number of out-of-pocket costs, including dental and vision care.
Actuaries at the Social Security Administration project that around a third of today's 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.
You may have heard of the "4% rule," a guideline stating that you should take out only about 4% of your retirement savings annually. Some retirees try to abide by it, but others withdraw 7% or 8% per year. Why is this? In the first phase of retirement, people tend to live it up. More free time naturally promotes new ventures and adventures and an inclination to live a bit more lavishly.
Not considering taxes.
It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its "preferred domain," which means the taxable or tax-advantaged account that is most appropriate for it as you pursue a better after-tax return for your entire portfolio.
Putting college costs before retirement costs.
There is no "financial aid" program for retirement. There are no "retirement loans." Your children have their whole financial lives ahead of them.
Retiring with no investment strategy.
Expect that retirement will have a few surprises; the absence of a strategy can leave you without guidance when those surprises happen.
These are some of the classic retirement mistakes. To help you avoid them, take some time to review and refine your retirement strategy with the help of a trusted financial professional. If you have yet to develop your personal financial plan, schedule a call with us to discuss the details.
I always say that retirement planning is a puzzle, and finding where each piece of the puzzle fits best is a vital part to achieving your desired outcome - the least amount of "gaps" as possible. We should see our Christian walk in a similar manner. While we may not see these "gaps" ahead of time, the more disciplined we are at planning for them in advance, the less severe they will end up being in the overall picture. Philippians 3:14(NLT) states, "I press on to reach the end of the race and receive the heavenly prize for which God, through Christ Jesus, is calling us." We will never have a life free of struggles, resistance, or heartache, but we can confidently live knowing that we are not alone in walking with through them. As we make the conscious effort to prepare and set ourselves up for success, the grace that flows will meet us where we fall short.
Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including Young Professionals, Current and Future Retirees and Church Staff Members.
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