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The Rising Cost of Retirement
Or Why Sooner is Always Better than Later
Many people delay planning for retirement because it seems like a daunting task. Because the idea of saving enough money to retirement is so overwhelming, it gets scary, so we deal with it by avoiding it. We tell ourselves that we’ll start later and do just fine when we retire. But who are we kidding? Only ourselves.
Here’s the dilemma in a nutshell: the increase in health care costs, inflation, and a longer life expectancy are combining to not only make your income needs higher, but you now have to have that income for much longer. If you haven’t started saving for retirement yet, you must begin planning for retirement NOW!
Here’s What We Don’t Know
- how long we will live, although we do know retirement could last 30 years or more
- the impact of inflation upon our nest egg.
- what kinds of health issues we will be facing.
- unexpected costs such as home repairs and car maintenance.
- how much health insurance and drug costs will increase.
Here’s What We Do Know
- Retirement will be the greatest expense of our lifetime. In the old days we could depend on Social Security to take care of us pretty well in our old age. Those days are long gone.
- Social Security was originally designed based on the assumption that people lived 10 – 15 years after retirement and there were 10 workers funding each retiree. Now, retirement can last upwards of 30 years and there are just 2-3 workers funding each retiree.
- Based on current Social Security statistics, your retirement income will roughly consist of: 55% from your personal savings, 24% from employer-sponsored plans, and just 21% from Social Security.
- Anyone planning to rely on Social Security alone could be facing a pay cut of 75% or more in retirement. Not a plan most of us want to follow.
So why start as early as possible?
- Early start = bigger nestegg
- Bigger nestegg = more choices in retirement
- More choices = more chances to do what you want
What if you ignore the advice?
On the flip side, if you don't get busy and start saving and investing, you may wind up living out your last years in significantly reduced circumstances. The U.S. Bureau of the Census Surveys show that approximately 53 percent of Americans over age 65 live on less than $15,000 a year, according to 2002 income data. Most of us don’t envision our retirement years near or below the poverty line. And you shouldn’t either.
Retirement Planning Questions for Different Stages of Your Life
Ask yourself questions like these during your 20’s through your 50’s.
When You Are Just Starting Out
- How much can you begin saving right NOW?
- Are you maxing out your employer’s plan, such as a 401(k)?
- How can you still set aside money for retirement when you’re facing lots of expenses?
Planning the Home Stretch
- What kind of retirement income do I want?
- How Much money will I need to make that income?
- What is it going to take to get me there?
Now That You’re Retired?
- Is your portfolio set up to last as long as you’d like?
- What’s the best tax strategy to generate your tax flow?
- Are you keeping up with inflation and continuing to grow your assets?
- Am I prepared for a long term illness?
The New Rules of Retirement
Companies have evolved a lot over past 50 years. It used to be you worked at a place where employee loyalty and longevity was highly valued. Seniority actually meant something and you got your 30 year watch and a fat pension when you retired.
Today’s labor market is more like the old Wild West, where it’s everyone for themselves. We used to be able to count on our companies to help us with retirement. Now, we realize it is up to us to be the captains of our retirement ship, so to speak.
Remember the old rules?
- Count on Social Security
- Kick back on lifelong company pensions
- Rocking chair on the porch
- Allowing outside forces decide your retirement future
Well, here are the New Rules:
- Taking control of your retirement finances
- Discovering effective strategies for saving and investing
- Working with 401(k)s, 403(b)s, IRAs
The cost of retirement isn’t going down any time soon, and we don’t expect those new rules to change anytime soon or make our lives any easier.
So, start as soon as you can and keep it up.
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