How Will You Pay Your Bills When You Retire?
It’s not a trick question. If you answered, “I’ll pay my expenses with my retirement savings,” you might need to reconsider. Many folks believe that a good retirement income rule is to set a goal to make the equivalent of 70 to 80 percent of what they earned before they stopped working.
That may be okay for a while; however, most retirees find that 70 or 80 percent doesn’t provide enough cushion for health emergencies. But health expenses aren’t the only concern. What about investing in new hobbies, travel, family, home repairs and grandchildren? Or the increasing cost of energy and food?
Current Employment Security
You’re preparing for your transition to retirement, which is a good thing. But are you overlooking the unexpected?
More than half of us are forced to retire earlier than expected, according to a 2015 AARP study. Beyond layoffs and firings, lots of people have to retire due to personal health issues or the health of a loved one.
Social Security Rules Change
Tens of thousands of married people who were planning to retire in 2016 found themselves with one less income earning strategy in regard to Social Security. In November 2015, Congress announced an end to the “file and suspend” option, which allowed the higher-earning spouse to file for Social Security benefits, then suspend them, only to reclaim them at a later date—and at a higher rate. This would enable the lesser earning spouse to start earning monthly benefits equaling half of the higher-earner’s full Social Security benefits right away. This strategy sometimes resulted in upwards of $130,000 of extra income.
But no more.
What will be the next changes coming down the pipeline during the 10, 20, 30 years of your retirement? There’s likely to be more. The bottom line is, what we can expect from Social Security today is likely to be cut through more changes yet to come in our lifetimes—and, when they hurt the most: during our retirement years.
If you have not diversified beyond your 401k or IRA, take a close look at today’s balance number and circle it. Ask yourself, “Can I stretch this out to last for the rest of my life?” If you don’t diversify, that’s the scary reality you’ll face upon retirement.
Even if the answer is “Yes, and several generations beyond,” then the question is, why haven’t you diversified? We live in a rapidly changing world, and in order to withstand global shifts in the markets, it’s imperative to build a diversified portfolio.
You may be like a lot of Baby Boomers who have worked hard, saved well, invested wisely for the future, and now that retirement is within a few years’ grasp, you can rest assured that soon it’ll all be Easy Street, right? The reality is, the majority of us get caught shorthanded when it comes to crunching the numbers of what we think we need compared to what we are actually going to need.
Unfortunately, I see more folks who continue to run up against unexpected expenses, whether they be health emergencies, home repair, or just the cost of day-to-day living creeping up. And before they know it, what was the comfy retirement nest egg is now rapidly diminished. A 2014 AARP study shows that 60 percent of retirees run out of money a full 9 years before the end of their lives.
The Best Plan to Secure Your Future
Even if you’ve amassed a formidable savings account, such as a few million dollars, and think you’ll be fine, while that was once true, it’s often not the case any longer. There is no such thing as a completely secure future. You have to plan to make your assets last.
While almost no amount of savings ensures that you’ll always be flush, thorough planning can go a long way toward making your actual future match up with the future you’ve always envisioned.