by Tyler Curtis
With all the turmoil in the markets over the past several years many investors have been left questioning themselves whether they will have enough to retire the way they’ve always dreamed, or retire at all, for that matter. Whether your retirement years are right around the corner or many years off in the distance, there’s never a wrong time to evaluate your definition of retirement and what it means to you both ideologically and financially.
When it comes to planning for retirement it is important to evaluate the big picture: desired lifestyle, trips and activities to pursue, and of course, financial security. Determining how much assets are needed for retirement and when to pull from them, is a very difficult task. Historically, individuals have done a very poor job of it. Research from the Society of Actuaries shows that 49% of retirees and near retirees plan for 10 years or less of retirement.
When planning for retirement there are many questions that need to be addressed, here are a few questions that every investor needs to ask regarding retirement planning:
What kind of lifestyle do I want in retirement?
It’s important to visualize your day to day life in retirement in order to properly plan for it. Countless studies have been done to try and pinpoint how much money people should have on hand before they retire. The truth is though, that this amount is going to vary dramatically depending on the type of lifestyle you’re looking to lead once you’ve left the workforce. We have developed a web app, My Financial Plan to help guide you through answering this most critical question.
How much cash flow do I need for my desired lifestyle?
After you’ve considered your vision for retirement and evaluated the expenses associated with that lifestyle, you should come up with the ideal amount of money that would need to be flowing in each month to support that lifestyle. Be sure to evaluate your income and budget for necessities, incidentals, and fun money. Many assume the cost of living decreases in retirement, however retirees tend to spend at least as much and often more than they did while in the workforce. Retirees will have more time on their hands for interest such as travel, entertainment, and hobbies.
Should I downsize?
According to the Mature Market Institute, housing costs account for about one-third of expenses for people over the age of 65. Many retirees want to keep their large home for a family to come home to over the holidays, but moving to a smaller place in a more affordable city may be a good way to stretch your retirement nest egg.
What if something happens to me or my spouse?
Consider how unfortunate circumstances could affect your lifestyle and plan for them while you are healthy: Will you want to live in an assisted-living facility? Will you have enough money to take care of yourself? Will you want to be near your children in the event you get sick?
It is also important to plan adequately for widowhood, most couples think the survivor will be about as well off as before the death of a spouse, yet many widows have a decline in economic status after the death of their spouses.
How will I pay for health care?
Factoring in the cost of health care insurance premiums and prescription drug costs is essential when deciphering how much money you will need in retirement. Medicare is available to most aged 65 and older, but even with government or employer-subsidized insurance, unreimbursed health-care costs associated with aging could cost as much as $200,000 over the course of retirement. Medicare covers a large portion of acute health-care cost, but very little in the way of long term care expenses. Preparing for medical expenses and coverage in advance can help prevent financial ruin if costly health care is needed.
Do I need to make changes to my investment portfolio?
Does your current mix of investments support the lifestyle you envision during retirement? When transitioning into retirement most individuals portfolios transition from an accumulation to distribution phase. It is important that the objectives of your investment strategy support the cash flows that will be necessary during retirement.
Don’t worry you are not alone, we are here to help you answer these questions and many more. We at Snider Advisors are always happy to offer an initial free consultation to help guide you in the right direction.