Four Retirement Challenges
Planning for retirement is one of life's biggest challenges, because when retirement day comes, you want your money to outlast you. According to the AARP, a couple age 65 today should expect at least one partner to live past their ninetieth birthday. So, if you're 65 and retired today, then your nest-egg should be prepared to provide support for at least 25 or 30 years, or you face the possibility of running out of money. We're living a lot longer than our parents and grandparents, so we need to prepare for retirement with greater care than ever before. Retirement presents four important challenges that must be addressed:
1) Volatility and investment performance:
Few investors, especially more conservative and retired investors, are able to outperform inflation after taxes. Therefore, if you're taking distributions from your nest egg in a flat or down market, and at the same time under performing inflation, then you're accelerating the depletion of your assets and purchasing power.
2) Rising health-care costs:
According to the AARP, a 65-year-old retired couple today should be prepared to spend at least $225,000 on Medicare deductibles and co-pays by the time both spouses are 80 years old. As you may know, Medicare is very different from your company's health care plan. If you're not 65 yet, understand that this $225,000 figure is increasing at a rate faster than inflation, so it will likely cost more in the future. And if you live past the age of 80, you will need to plan for additional resources to cover medical expenses.
In 1980, a first-class stamp cost $0.15. More than 30 years later, that same stamp costs more than three times that ($0.49 today)! Will you be able to maintain your current lifestyle if the cost of living increases three-fold over the next 30 years?
Imagine the value of your life savings after 30 years of inflation and withdrawals. Over 30 years, the inflation factor alone might reduce the purchasing power of your money by two-thirds. But, we haven't counted withdrawals (your living expenses) for all those years to determine if you will have anything left, or if you will prematurely run out of money.
For example, if you spend an average of just $7,000 before-tax dollars each month to cover all your living expenses for the rest of your life (including new automobiles, vacations, healthcare, taxes, upkeep, etc.) and then adjust that figure upward for inflation every year just to maintain your lifestyle, then you'll spend over $2.5 million dollars over the next 30 years. That means if you're 65 years old today and accept a $7,000 monthly pre-tax lifestyle, you'll need $2.5 million dollars in your bank account today and be skilled enough to invest your money so that your net after-tax returns will keep pace with inflation. If your investments don't keep pace with inflation, then you'll face the possibility of running out of money prematurely. Our example assumes that you have no other sources of income and that your net return on investments is equal to the inflation rate.
According to the Center for Retirement Research at Boston College, over 50% of Americans will be too poor to retire at age 65 because they haven't saved, invested, or planned appropriately. While there is no guarantee of success with any retirement plan, the good news is that it's possible to turn a Retirement Deficit™ (even a large one) into a Retirement Surplus™. A successful outcome, however, will depend on making the necessary adjustments now, because a certain amount of time is required to fix the shortfall. The bottom line is, don't wait! Do something about it now.
At 65RETIRE Wealth Managers, we strive to provide the professional guidance you'll need to survive the long haul of retirement. You can't afford to make mistakes especially if retirement is 5, 10 or even 15 years away. If you're over the age of 45 or 50 today, a 65RETIRE Wealth Managers professional advisor can make a huge impact on your financial future. If you want to Cultivate Your Independence® all you have to do is click the "Contact Us" tab and give us your name and email address, or contact us by telephone at 1.888.65.RETIRE.