Is Your Retirement Planning on Track?
Do you know just how much you really should be saving for retirement? Do you have a retirement action plan? Or are you hoping it’s all going to somehow work out? Yes – you need retirement planning. It cannot be denied.
In Part 1, we looked at basic retirement planning and how Social Security’s contribution fits into the grand scheme of things. Now we will look at just how much you will need. And we will look at how to set a reasonable retirement target date.
How Much Do You Really Need?
CNN has a pretty decent retirement calculator where you can get some ideas as to your financial needs, but that does not take into account every single potential variable. You will always need to consider the following when making a tentative budget:
- Rent, mortgage, or property taxes or some combination, or condo fees
- Food including restaurant meals
- Utilities and other household operational expenses like repairs (do not forget internet and cable)
- Clothing and personal care products
- Transportation such as car, insurance, fuel, tolls or transponder, bicycle, bus pass, Uber or the like
- Medical care not covered by insurance or Medicare
- Other insurance which includes life or renter’s or homeowner’s
- Taxes including on tax-deferred annuities (if applicable) and traditional IRAs (for Roth IRAs, you pay your taxes up front so those are free and clear)
- Entertainment and communications including cable, movies, internet, cell phones, video games and the like
- Vices like gambling, tobacco, vaping, marijuana, or alcohol, or going to bars
- Miscellaneous including gifts to others
- Debt payments (if any)
Typical inflation in the United States is about 1 – 2% per year (2021 is an exception!). Consider that gasoline, for example, averaged at $1.22 per gallon as recently as 1997. Prices tend to go up. Right now, Value Penguin reports that average annual household costs in 2013 were nearly $64,000. So this works out to about a $5,300 monthly average.
Other Expenses You Might Not Have Taken into Consideration
You may not want to hear it, but you should seriously consider the cost of health care. And that includes possibly a home health aide. It may also include a housekeeper or a shopper. That would be a person who is not a health professional. But their work and their presence could end up saving you healthcare dollars down the line
A Word to Younger Folks about Saving for Retirement
The younger you are the more quite literal bang for your buck you are going to get from your savings. Hence, you can afford to save less. Retirement may feel like it is a long ways away when you are under age 30. But starting to save at that age will make saving for retirement that much easier. Furthermore, it will help you to establish a pattern and a habit in your life. You will never miss money you never see.
And those years are going to go faster than you might think.
Retirement Planning Means Setting A Retirement Target Date
Start thinking about how old you want to be when you retire. While you might be interested in retiring early, that is often not financially feasible for most people. Hence you may want to investigate several different scenarios. What happens if you retire early, at age fifty-five? And what does that do to your Social Security payments? What if you wait until age sixty, or sixty-two? Is there an appreciable difference between retiring at age sixty-five or sixty-seven? What if you work even longer, until seventy or even seventy-five?
So if you love your job and it is not too physically taxing, that could be an option. But do not count on it, for your mid-seventies are when you may start to see major physical changes. These include cancer, dealing with cardiac or orthopedic issues, or the onset of Alzheimer’s.
Retirement Planning Means Preparing For a Pleasant and a Not So Pleasant Future
As we age, we are more susceptible to illness, injuries, and infections than we ever have been. Does diabetes run in your family? Or cancer or Alzheimer’s disease? Does it run in your spouse or significant other’s family? If the answer to any of these questions is yes, then you are going to have to take that into consideration.
This can take the form of buying additional life insurance or a supplement to Medicare. Check with a financial services professional. You may even open up a health savings account, or HSA. An HSA is an account you can open with your bank.
Retirement Planning Also Means Estate Planning
Sigh. You know you need to do it. And you probably do not need for me to tell you. But… you keep putting it off. After all, you will only have to change it as your circumstances, right? You have another child, or maybe you become a grandparent. Or maybe you move to a new state so the laws are different. Perhaps you now own your home outright. Or you bought a boat. Then again, maybe now you are in medical debt. That would affect estate planning as well.
But no matter what is changing your life, it does not mean you should go without some sort of a plan. So, how do you get started? Do some creative Googling to start. That means looking up the following: intestacy laws (and then just add the name of your state). Intestacy just means you die without a will. For example, here is what Nolo says about Massachusetts. For example, if you die without children and you survive your spouse, the kids will inherit everything.
If that is what you want, then you may be able to get away with a quick and dirty will you more or less do yourself. But check the laws in your state, and make sure that is acceptable and will pass probate. But if you want something else, you may want to get legal representation.
Do You Really Need to Do This?
Why do you want a simple will if you agree with the intestacy distribution? There is a little matter of understanding your intent. If you think everyone will agree even if your intentions are not spelled out, then maybe you do not need anything. But if you feel there is the slightest chance of a fight, do everyone a favor and make your wishes clear.
Because there is no family fight like an inheritance fight.
Retirement Planning Also Means Preparing for When You Can No Longer Attend to Your Affairs
If you have children, then they may be the people you seriously consider to handle your financial and medical affairs. They may be the people who you think of first as your heirs. And you may first think of them as the people who should be entrusted with a health care proxy and a power of attorney. But ask! Always ask.
You may find out one of your children is less inclined to do this. Or they may be less talented in this area. After all, you want an advocate in this position. This means someone who will ask questions of doctors. And they should be a person who has no problem disputing charges that are in question. Of course, you need for them to be impeccably honest as well.
But if you do not have children (the writer of this blog post does not), then you will need to cast your net wider. And you will need to get creative. Some of these roles might fall to an attorney or a financial planner. Or they might fall to a beloved niece or nephew, or a cousin. As with a person with offspring, always ask before springing this on someone.
Retirement Planning Also Means Tending to What Happens After You Die
We are all going to die. That is inevitable, no matter how little we may want to talk about it. Funerals and their trappings are expensive. It will save money and family grief if you make your arrangements long before you will need them. The moment of your death is probably not known. But you can plan for after it in advance. Many funeral homes will give a discount or a better payment plan if you pay up front.
And if you do not want a funeral or a burial or a coffin, then there is no time like the present to make that clear. The last you want is for your family to be spending tens of thousands of dollars (yes, really) on an elaborate sendoff when all you really want is to be cremated and have your ashes scattered at the local beach.
Furthermore, planning early means you are able to dispassionately compare costs and shop around. Your grieving family is probably not going to be in any sort of condition to do so once you have died. So save them big headaches and take care of this now.
Retirement is a large goal with a lot of moving parts, so it makes sense to break it down into more manageable chunks. Here is where a retirement action plan can truly shine.
Consider a five-year milestone system. If you are 30 right now, then how much do you need to have saved by age 40? 60? If you are a lot closer to a typical retirement age, then you might want to consider milestones every one or two years. Your milestones should take into consideration:
- How much you have saved
- How much debt you are carrying
- What has changed which affects you financially – did you move, have a child, change jobs, get a divorce?
- What your investment mix looks like – are you still comfortable with the amount of risk you are carrying? If you changed jobs, did you consolidate your retirement funds so you can best keep track of them?
Retirement Planning is Vital for Everyone
Retirement planning will help ensure your later years are relaxed and comfortable, rather than filled with stress and fear about the future. Early and thorough planning, and saving with an eye toward inflation and unforeseen expenses can make that happen. And a realistic look at your and your family’s future will help as well. Share this and tell your friends what you think of how to live your best financial life.