You know when you want to retire and you’re laser-focused on saving to get there. However, retirement planning isn’t JUST about saving enough money. There are other factors you need to consider. Otherwise, it won’t matter how much you save if you don’t plan properly.
You may have already jotted down what you think your retirement budget might be. Yet, most people don’t include unexpected items such as repairs, replacements and maintenance for your house or car that could greatly impact your long-term financial projections, so be sure to consider these costs.
If we have a 3% inflation rate over 20 years, your expenses in retirement go up by nearly double. Here are some examples of cost of living increases that will continue to go up during your retirement years:
As you can see, these things have tripled in price over 40 years and you’re going to need to have a budget that reflects these increases.
It’s good to have this on your radar because more often than not, couples aren’t discussing where they’ll live in retirement. You’ll need to decide if you plan to stay in your family home, or downsize. This can be an emotional discussion, but it’s important to make sure your finances in retirement line up with your housing plan and that you’re making a cost-effective choice.
Many people are unrealistic about the length and quality of their life in retirement. Frankly, most believe when they get sick, they’re going to die right away, but that’s not necessarily the case. The U.S. Department of Health and Human Services says approximately 70% of people over age 65 will require some degree of long-term care services during their lifetime. You want your plan to take into consideration living a very long life because running out of money in your late 80s or early 90s makes it rather difficult to get a new job and start working at that point in your life.
Traditional retirement used to mean a permanent exit from the workforce. Now, a growing number of retirees are continuing to work, leaving their full-time jobs for bridge jobs and spending more time away from the office at an earlier age. When you transition into this kind of work, it relieves substantial pressure on your financial plan.
Nothing can destroy a good financial plan like the unexpected task of helping your children with their bills. This happens when parents aren’t realistic about their children’s financial situations and get caught off guard coming out of pocket. The reality is you may need to work these expenses into your retirement plan. So, take a good look at how your children are really doing and be honest about the likelihood that you may need to help them out.
Michael Carlin, AIF®