Do you want to retire as early as possible? Or do you love what you do and plan to continue working forever?
Either goal is great! But whichever you aim for, there are several considerations you will want to be aware of so you can prepare for your best future.
Many individuals today envision themselves working a long, successful career well into traditional retirement years. However, in reality many cannot fulfill this dream due to unfortunate health issues.
Additionally, modern medicine is helping folks live longer than ever. This may mean, though, that some find they are unprepared financially for the extra years and will need to settle for a lower quality of life.
You don’t want this to happen to you, so how should you prepare?
Find your number
First you will want to find the dollar amount that is most likely to meet your needs in retirement, including a long life with possible health issues. If you have $1M and plan spend $50,000 per year, do you think that will be enough to last the rest of your life?
While it’s not possible to predict this exactly, there are simulations that can be run to make reasonable predictions for your future. You can work with a financial advisor to stress test your current plan and make adjustments as needed to create the best possible chance of success.
Understand health care costs
If healthcare premiums seemed expensive when you were on your employer’s plan, you may be in for sticker shock when you are on an individual plan.
Employers often pay a large portion of health insurance premiums, but when you leave your employer you will be paying the full bill yourself.
Your budget may be perfect if you plan on paying the house off, but adding the cost of a good healthcare plan to your current living expenses can push your cost of living up significantly.
Ouch! This means you might need to increase your savings to account for a larger insurance cost in retirement years.
Consider a 20+ year retirement
In previous generations, retirement years were often short. However, as individuals live longer, retirement years are stretching out significantly.
Individuals retiring in their 60’s may need to plan for 20 or even 30 years of retirement. 20+ years of retirement sounds great, right? But forward thinking and careful planning is required to make this a comfortable and enjoyable period.
Inflation is one thing that can crush this dream. Costs go up every year due to inflation – typically at about a 3% rate. This means that overtime the budget you live on today will need to increase if you want to be able to afford the same things.
How much more expensive will items be in retirement? You can use the rule of 72 to get to an educated estimate: Dividing 72 by the inflation number (i.e. 72/3) tells you it will take approximately 24 years for an item to double in cost.
If milk costs $3 today, it will probably cost about $6 in 2045. So maybe your $1M goal should be $2M…
In addition to inflation, you will want to account for the cost of long-term care in your plan. While you hope to never need it, many individuals will be in need of hospice, in-home, or nursing home care in their later years.
The costs for these services can be astronomical and definitely outside of the normal budget, so it is beneficial to plan for these early. You can work with your advisor to determine if you will want to set aside extra savings and possibly add in a long-term care insurance plan to your portfolio.
Whether you wish to keep working in retirement or not, it’s vital to plan carefully for any scenario that life may throw your way. A well-crafted portfolio will allow you peace of mind if and when you are hit with the unexpected. Take control of your future with preparation for those retirement risks!