Your Financial Future: Start early to plan for retirement
A few years ago, a major insurance company ran ads asking what is your magic retirement number. This was supposed to be the amount of savings someone had to acquire to be able to retire. Recently this same question was posed in a survey. Americans thought they would need nearly $1.3 million to retire comfortably.
What most people should strive for is the 鈥渕entality of feeling assured that you can spend money throughout retirement,鈥� one expert said. If you retire at 60 and live to 100, you have to worry about what costs will be over 40 years. Longevity becomes a major concern when planning retirement.
You must start some years in advance to prepare for retirement. One of the most important steps is to pay down debts. It is amazing how many people still have a mortgage when they quit working. I have seen a number of people who retire and then want to do major remodeling on their house. Most people are going to make less money when they retire than when they were working. If this were not true, people would just go ahead and retire early. You must prioritize your spending. Some seniors also have to learn to say no when they retire, if they have been spending large amounts of money on their children or grandchildren.
Most people have three kinds of expenses. The first is everyday living expenses, such as utilities, groceries and property taxes. These needs must be paid no matter what happens with your investments or in the economy. The next group are discretionary expenses, such as going on vacation or eating out. They could include buying a bigger car or fancy clothing. They are things you would like to do, but don鈥檛 need to do. The last group is aspirational spending, such as paying for a grandchild蘑菇视频 wedding or helping them buy a house. How many of these types you can do depends on your overall savings and can make a huge difference in your budget. The basic cost of living expenses should be funded from guaranteed sources of income.
Seniors have said their biggest fear in retirement is running out of money. This has constantly ranked at or near the top in survey after survey. This is not surprising since most people cannot imagine being retired for 15 years and suddenly having to find a job because they ran out of money. Yet many seniors mistakenly believe retirement is all about assets. Really what it is about is income. There are ways that you may be able to create your own pension to cover your basic needs.
Assets can be lost due to a market correction. If this happens early in retirement sequence of risk can destroy a large amount of assets. Seniors usually should take on less investment risks than younger investors because they don鈥檛 have time to make up losses. In retirement during the distribution phase of the money cycle, the rules are completely different than during the accumulation phase while you are working. Decisions made about when to start receiving Social Security benefits must be made. Respondents to a Northwestern Mutual survey say they expect Social Security to cover 28% of their overall retirement funding. This is a much higher percentage at lower income levels. Remember, these decisions can affect a surviving spouse decades later.
Have a written plan for retirement and it will be much more enjoyable. Too many people are afraid to spend their savings in retirement because they worry about 鈥渏ust-in- case events鈥�: What if I go in to a nursing home, what if the stock market crashes, what if I live too long and many other possible reasons. A written plan will help eliminate these worries. As Tom Hegna says, 鈥淲hen you retire, every day should be like Saturday.鈥�
Gary Boatman is a Monessen-based certified financial planner and the author of 鈥淵our Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.鈥�