Are You thinking about Retiring?
In our business we are often involved in assisting our clients as they plan for their retirement. We sit with them to discuss planning options and a sudden realization hits. Perhaps it should no longer be such a surprise, but it is still hard to believe how little thought people give to the planning process.
Many of our clients are going to spend a great many years in retirement, perhaps 30 or more in some cases. How they prepare for those years and whether or not they can enjoy them can be challenged by a lack of appropriate planning. The hard reality is that our ability to enjoy our retirement years is heavily linked to financial considerations. Certainly we can help our clients to prepare documents and determine strategies, but this job is much more easily accomplished if they have already given at least a bit of thought to the process before we sit down to talk.
So what should they be doing? Well, I often tell them to start with an obvious step, make a simple budget! Take a look at what you believe will be your income sources during this time. What sources do you have and how much income will they generate? Consider when it would be best for you (as well as your spouse) to begin to take Social Security benefits. Should you do this at age 62, your full retirement age or at 70? This can make a substantial difference in the amount of income you will gain from this source. Where will other income be derived; IRAs? Pension Funds? Annuities? 401K Funds? Or will you plan on working a part-time job? Once you have done this you have a pretty good idea of how much you will have to spend.
Now that you know how many dollars you will have, it is time to determine how much you will actually need. I suggest that if you have not ever tracked expenses, you should plan to do this for at least half a year in order to get a good firm grip on the details. Some expenditures to keep in mind include groceries, gifts, clothing costs, transportation costs, medical costs, recreation costs and other household expenditures. And while we are discussing housing, what are your plans in this regard? Do you plan to age at home? Can you do this financially? What about the costs to make your home more accommodating and accessible as you age? Will you relocate instead, and what are those costs? Be realistic and determine a monthly spending amount that is reasonable.
The rest is simple, right? Just compare the income with the spending? Well, I tell our clients to first take a reality check. You see, studies have shown that aging is going to adversely affect our cognitive abilities, including those involving finances. This is especially true once we pass the magic age of eighty. So, I think that it is an absolute necessity to create an estate plan that includes a trusted person to help with finances (your Power of Attorney for Property agent) who will be able to step into your financial shoes if and when the y are needed down the road! You should also have a good financial advisor as well.
One of the most difficult costs to predict for seniors is the escalating cost of medical care. Some studies have shown that a couple at the age of 65 will need in excess of $300,000 for anticipated medical costs throughout the remainder of their lives. Certainly there will be Medicare and other programs which will help, but have you considered how much of the financial burden you are willing to insure with your own funds? Have you given thought to purchasing long-term care insurance as a method to protect you from some of these large costs?
You might find yourself now discouraged by all these decisions you need to think about now. But don’t fall into that trap! Remember the old Benjamin Franklin saying, “by failing to prepare you are preparing to fail.” You can do it! And we will be here to help if needed.