What do you imagine for your retirement? Part 1

What do you imagine for your retirement?

The possibilities are almost endless.

Your retirement may include:

•          traveling to far-flung destinations

•          indulging in your favorite hobbies

•          enjoying unhurried time with friends and family

•          devoting more time to volunteering

•          or maybe even starting your own business —perhaps one you’ve always dreamed about but never had the time or money to launch.

Whether you are beginning a career, changing jobs, or preparing to retire, it is never a bad time to start planning your retirement.

What you probably don’t imagine is continuing to work longer than you wish or curtailing your retirement activities simply because you don’t have enough money to support the lifestyle you envision.

Planning for retirement means looking into your future. 

A successful retirement begins with envisioning a rewarding, healthy, and responsible lifestyle – one that’s personalized for your needs.

We urge you to create a mental picture of what you want to be doing when you retire...and write it down! The simple act of writing your goals down on paper is an effective way to refine and crystallize your retirement objectives.

A few good questions to think about when you do this:

•          What would make a perfect week for you?

•          What would you like to do during each season of an ideal year?

•          What day-to-day activities would motivate your mind, maintain your health, and help build relationships in your community?

There are important realities to consider as you consider your retirement. 

One of the most important is the ability to afford quality health care, including long-term care. An estimated four out of every 10 people turning age 65 will use a nursing home at some point in their lives, and many will need home care and other related services.

What’s more, according to the National Center for Policy Analysis (NCPA ), older Americans currently spend an average of 17% of their income on health care.

By 2030, that average is expected to rise to close to 24%.

Another way to look at rising health care costs is by looking at how much of your Social Security benefits they will account for.

•         In 2007, senior citizens spent an amount equal to 33% of their Social Security benefits on health care.

•         By 2050, that amount is expected to be almost DOUBLE, to 66%.

Not only are healthcare costs increasing, but people are also living longer. 

A growing focus on health and fitness, the availability of excellent medical care, and ongoing scientific advancements afford today’s retirees an opportunity to stay healthier and live longer than ever before.

In fact, today’s retiree is likely to live 20 or more years after retiring.

That means your retirement savings will have to last longer than ever before.

It also means that a greater portion of your accumulated savings may eventually be needed for long-term care or medical expenses.

Did you know that a 65-year-old man has a 40% chance of living beyond age 85?

Also, if a husband and wife are both age 65, there’s a 72% chance that one spouse will live beyond age 85.*

And then there is inflation …

A dollar today will likely be worth less at retirement because of inflation.

Since everyday items get more expensive over time, you need to plan for future price increases when saving for retirement. While it is difficult to predict inflation rates, even a 3.2% rate of inflation (just below the historical average of 3.43%) can have a significant impact on purchasing power and on your future standard of living.

Consider how the cost of a new home has risen over the years. A new home cost an average of just $143,000 in 1991. Yet by 2022, the average price was $348,079 and that’s expected to rise to $843,964 by 2041.

Inflation has had the same type of impact over the years on the cost of a gallon of gas and even a gallon of milk.

Are you prepared?

Today’s generations are turning many previous assumptions upside down.

For example, they may be caring for children again as they come back to the nest, or they may be going back to school later in life. Saving for retirement always takes planning, discipline, and sound information, but every stage of life presents some unique challenges.

Consider these typical examples of roadblocks to retirement saving at different points in your life…and a few tips to help you along the way.

In your 20s, paying for your wedding, repaying student loans, and paying rent while saving for your first home can all make saving hard. 

A tip for those in that age group: Start contributing to your employer-sponsored retirement plan if you can.

In your 30s, typical roadblocks to saving may include the need to make a down payment on your first home, to make monthly mortgage payments on a house that you do own, paying for life and medical insurance and child care expenses.

A tip for those in that age group: keep up your contributions to retirement plans, and don’t forget that your spouse can contribute to an IRA if they do not work as long as your household has some income.

In your 40s, typical roadblocks may include saving for a child’s college expenses, the cost of adoption or fertility treatment, various health care costs, vacation costs, various lessons and activities for children, and perhaps even caring for aging parents.

A tip for those in that age group: Try to maximize all your retirement plan options, including both 401(k)s and IRAs. If you have your own business, check whether you can take advantage of the higher contribution limits offered through SIMPLE or SEP IRAs.

As you get older, there are still possible roadblocks to saving and investing. Even in your 50s, 60s, and 70s, you’ll have to take into account needs like these:

In your 50s, potential roadblocks to saving include the need to pay for a child’s college expenses, wedding costs, or home purchase; the possibility of providing financial support to parents, a sibling, or an adult child; and the chance of an economic recession changing your income or savings opportunities.

A tip for those in this age group: Take advantage of any catch-up contribution provisions to your 401(k) or IRA. This can be an important way to compensate if you have not saved regularly before.

In your 60s, there is the possibility of your employment income going away when you retire, as well as any employer-provided health insurance.

A tip for those in this age group: get advice from a qualified professional about your options in terms of when to start collecting Social Security benefits. The earlier you start, the lower your monthly benefit may turn out to be.

In addition, you’ll need to think about when and how you make withdrawals from retirement accounts; some types require you to begin at a certain age. You certainly want to consider whether taking too much out too quickly could result in your outliving your savings later on.

Finally in your 70s and beyond, health care costs are a major concern. You may be unable to work, need nursing home care, or might actually face the issue of outliving your savings. 

A tip for those in that age group: If you can and do continue to work, make sure you get qualified advice about the impact of any earned income on your retirement benefits. Also, consider getting advice on estate planning and college saving plans like 529 plans that could allow your heirs to benefit from your wealth.

What is important to remember is that saving for retirement is up to you. You have to make sure to make it a priority in order for those savings to occur.

One big question is - where will your retirement income come from?

There are typically three main sources of retirement income:

Social Security benefits, employer-provided retirement plan accounts, and personal savings.

However, Social Security benefits are intended to cover just a portion of your post-retirement income needs.

It is important to maximize your retirement plan savings and personal savings to help ensure you enjoy the retirement lifestyle you envision.

Remember, with retirement plan investments such as a 401(k) plan or an IRA, you want to get time on your side as much as possible. The earlier you start saving, the more opportunity your account has to grow and accumulate in a tax-advantaged way (subject to certain limitations).

Whatever your age, make the most of these savings opportunities now to give yourself the best chance to reap the benefits later.

Historically, many people have relied on social security for a regular stream of income in retirement.

But, what happens if that is not enough?

While Social Security benefits account for 50% of the average retiree’s monthly income, the current average monthly Social Security benefit payment is just $1,666.49, the average monthly benefit spousal benefit was $837.34. and these amounts may decline in the future as the ratio of workers paying into the system versus retirees collecting benefits continues to fall.

How will you make up the difference, or ensure that you have the income or assets you need, we'll examine these options in part 2 of our series.