If you are among the growing numbers of Americans reaching their retirement savings goals, congratulations!
According to the Center for Retirement Research, 50% of working-age Americans report they could maintain their pre-retirement standard of living in retirement, as measured by the Center’s National Retirement Risk Index. This is a 2% improvement over the center’s previous measure of retirement readiness in 2013.
Thanks to rising home values and stock market all-time highs, the account balances of employer and individual retirement savings plans are flush. So, now that your retirement savings goal is achieved, what should you do next to enjoy the retirement you have worked hard for over many years?
Start with a Retirement Plan
You know what it takes to live comfortably now. But what will it take to live comfortably in retirement? While you will likely shed some expenses, such as potentially paying off a mortgage, there will be new costs associated with retirement.
You’ll have time to pursue that dream hobby, quench your desire to travel the world, and take more trips to see the grandkids. Budgeting for these new realities will help you see just what income you’ll need.
And the new reality that no one likes to discuss, but that is often the largest expense in retirement? Rising medical costs. A 65-year-old couple retiring this year will need an average of $275,000 (in today’s dollars) to cover medical expenses throughout retirement, up from $260,000 in 2016, according to the latest retiree healthcare cost estimate from Fidelity Benefits Consulting. At that rate of climb, what could that number be when it applies to you?
What’s more, this figure is only for retirees with traditional Medicare insurance coverage. It does not include costs associated with nursing home care, which Fidelity reports could add another $130,000.
Don’t Forget Long-Term Care Expenses
Planning for long-term care should be a critical component of your retirement roadmap. The impact could affect you and your caregivers in several ways: financially, physically and emotionally. Ease the burden of this risk to you and your loved ones by putting a plan in place to address these concerns.
Your situation may also be like those of others, where you are preparing for retirement while caring for aging parents. Should that be the case, your retirement planning efforts are essential to maintain. You will want to keep your own efforts on track as you help your parents with retirement living costs and the high-ticket expenses of healthcare as well as long-term care.
Consider Your Longevity
Take what you will be spending monthly, and extend that income requirement over a few more decades. Why? You will likely live longer than you think you will. Looking at your own family you can see that current generations are living longer than previous generations.
Statistical analyses from the Social Security Administration and other organizations also document this. Increasing lifespans are happening largely thanks to advances in medical care, better lifestyle choices, and modern conveniences.
According to the Society of Actuaries, for people currently in their mid-50s, 33% of men and 50% of women will live to age 90. Guaranteed income becomes even more important with longer lifespans.
Match Your Expenses to Your Income
Once you know your expected expenses, you can start matching them to your income streams to cover monthly living expenses. These income sources can include Social Security, pensions, asset income, earned income and guaranteed income. Don’t forget to include the year-to-year effects of inflation in your projections, too.
Pensions were once Americans’ main source of retirement income. However, decline in pension programs and companies’ moves to decrease their pension liabilities fueled the rise of the 401(k) and Individual Retirement Accounts. In turn, this has shifted the responsibility of retirement income squarely to the individual’s shoulders.
Guaranteed income sources, such as annuities, have also gained favor with investors seeking asset protection and long-term payouts. Retirement planning professionals employ several strategies to use the fixed-income promise of annuities to supplement retirement income and even provide for income growth.
Measure Your Diversity
With flush retirement savings, protecting that nest egg and extending it throughout your lifetime becomes paramount. Consider new diversification strategies that will help you meet these ongoing, long-term income needs in retirement.
Since you won’t be drawing a paycheck in retirement, you’ll be drawing on your accumulated assets for income. While many espouse the “4% rule” when it comes to annual withdrawals from your retirement assets, there are many factors—and changing economic assumptions—that come into play.
Key questions to ask yourself:
- Do you have safeguards in place so you have steady, reliable income streams, even in poor market conditions?
- Does your portfolio have suitable asset protections so your money lasts for potentially 30 years or longer?
- How exposed is your portfolio to market volatility?
- Generally speaking, is the amount of risk your portfolio carries appropriate for your age, circumstances, and financial picture?
A knowledgeable financial professional can help you answer these important questions.
What About Your Retirement Income Strategy?
At SafeMoney.com, a financial professional stands ready to serve and help you uncover powerful income strategy options for your future. Whether you are in the beginning throes of retirement planning, or you want a second opinion on your existing plan, you can find the guidance you seek.
Use our “Find a Financial Professional” section to connect directly with a financial professional and to request a personal strategy session to discuss your needs and goals. Should you have any questions, concerns, or need a personal referral, call 877.476.9723.