Retirement. It should be quite a treat. But planning for it can be tricky in these challenging financial times. Surely you've heard the horror stories...
- Health care costs continue to rise, despite reform.
- Social Security now pays out more than it is taking in.
- Pension obligations far outweigh available funds.
Sadly, these obstacles could haunt you, too, if you don't plan your retirement finances accordingly. For example...
You May Not Be Saving Enough
As seen here, survey results released by the Employee Benefit Research Institute in March 2011 showed that more than half of workers report they and/or their spouse have less than $25,000 in total savings and investments, including 29% who have less than $1,000. A good rule of thumb is to be saving 10% of your income or more if you are behind as so many are.
You'll Need More than You Think to Retire
In fact, retirement could well be the greatest expense of your lifetime. How much will you need? Well, that will depend on several factors. But as is discussed in this article, it's not likely to be less than what you spend now. Then again, if you do have to adjust your lifestyle to live on less, you won't be alone. According to this article, 2002 income data in U.S. Bureau of the Census Surveys shows that approximately 53% of Americans over age 65 live on less than $15,000 a year. And even more American retirees could be facing this situation now given the financial crisis.
Why is that? Well...
Healthcare Costs are Staggering
Here's where most of your costs are likely to come from in retirement, as it's estimated a married couple should save anywhere between 240,000 and $280,000 to cover out-of-pocket medical expenses. Plus, according to this Money Central article, that estimation is not only growing but also limited: it does not include expenses such as over-the-counter medications, most dental services or long-term care.
You Can't Rely Solely on Social Security
This shouldn't come as any surprise given all the talk about the impending limitations of Social Security. According to the Congressional Budget Office, the Social Security system paid out more in benefits than it received in payroll taxes in 2010. That was not supposed to happen until at least 2016. And Social Security deficits are projected to get increasingly worse in the years ahead. So in real numbers, this ING.com article explains it well: 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. There simply won't be enough from Social Security to go around.
Pensions May Be a Thing of the Past
Take a look at this article and you'll see, the reasons for the decline of the traditional pension are many. One thing is for sure: once upon a time, you could count on getting a big, fat pension if you put 30 years into a job. But now pension plans everywhere are failing. Today the new normal may be the YOYO - You're On Your Own - economy.
What Home Equity?
That's right, you probably have none after the real estate market crash. That's a big change from, say, 2006 when common advice may have offered the option of tapping into your home equity or downsizing. Today, that may not be an option at all.
The scariest part about all this is that, unlike the horror flicks and haunted houses that are so prevalent this time of year, these facts are not just illusions. They're not going to pack up and make way for Thanksgiving and Christmas once the month of October comes to a close. So what can you do?
- Start saving as much as you can... as soon as you can. Now, if possible.
- Crunch the numbers so you know where you are and where you need to go.
- Get a written retirement plan in place ASAP.
Yes, there is some urgency because, in the tricky treat known as retirement planning, procrastination can be a boogieman. If you need some help figuring out how to get on the right financial path, give us a call. Don't worry - we don't bite. We'll leave that to the werewolves and vampires.