Have you underestimated how much you will need in retirement? What is enough?
Transitioning from working full time to retirement can be a scary time for most people, especially if you aren’t sure you’ve saved or invested enough to cover all your needs. You’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.
Read on to learn more about weighing these variables in a way that gives you the most accurate result, as well as how Long Term Living Association (LTLA) can help you when it comes to managing retirement expenses.
Health
When planning for retirement, most assume (or at least hope) it will be a healthy one. However, according to the U.S. Department of Health and Human Services almost 70% of people over age 65 will require some form of long term care.
Most of us will face a major health problem at some point in our lives. Think, for a moment, about the costs of long term care (home health care, nursing home, assisted living facilities and more), prescription medicines, and recurring treatment for chronic ailments. These costs can really take a bite out of retirement income, even with a great health care plan.
Heredity
If you come from a family where people often live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.
Furthermore those whose family members tend to develop certain conditions (like Alzheimer’s disease or ALS) relatively early in life may also want to set aside funds to pay for long-term care (or purchase long-term care insurance) to ensure hard-earned retirement funds aren’t quickly drained by nursing costs.
Portfolio
As Ed Slott, a nationally recognized authority on retirement planning says: “The same rules that helped you accumulate money in the 1st half of your financial life, can separate you from your money in the 2nd half of the game of Life.”
While every investor’s risk tolerance is different, it is critically important to re-evaluate how your assets are invested heading into your retirement years. Being invested in funds that are too risky may not be as appropriate at age 60 or 65 as it was at age 40 or 45.
On the other end of the spectrum, being invested too conservatively or remaining solely in cash or hard assets could leave you vulnerable to the effects of inflation. Before retirement, it can be worthwhile to review your investments on a regular basis to ensure your asset allocation is appropriate for your needs and goals.
Spending Habits
Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not.
Retirees rate financial problems as their single greatest source of stress. According to a recent Legg Mason survey, investors spend an average of 1 hour and 20 minutes per day thinking about or worrying about money. That equates to over 9 hours per week, or 475 hours per year!
Will you have enough?
When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. You won’t learn how much retirement income you’ll need by reading this article. Consider meeting with a qualified retirement planning professional who can help estimate your lifestyle needs and short-term and long-term expenses.
Even after identifying all the factors that can make your own retirement number unique, giving the proper weight to each factor can be a challenge. Here at LTLA, we can help you plot a number of different retirement planning scenarios and help you preserve as much of your nest egg as possible, so give us a call at 1-800-868-1193 to get started today!
Our Retirement Income and Long Term Care Insurance Specialist
Michael FitzPatrick
