ADVICE - Retirement The Financial "Big Picture"

Retirement — The Financial “Big Picture”

By Robert Skladany

This Topic is Featured on: RetirementJobs Radio

Are You Financially Prepared for Retirement?
Considering retirement and worried about whether you can afford it? There are so many things to consider and so many variables — some of which you have limited control over like healthcare costs, energy costs and the general economy. Even a well-prepared retirement plan can become useless in a year or two if major changes occur in your life. Still, as Dwight Eisenhower once stated, “Plans are nothing, planning is everything.” So, let’s look at your retirement financial “big picture.”

Your Lifestyle and Life Span
How much money you will need depends principally on how long you live and how you will be living. Sounds pretty obvious but it can be difficult to confront some hard financial realities and the fear of growing old — so we often try not to think about it.

How long will you be alive? In the U.S., men can expect to live to 82 and women, to 85. Your life span may be shorter or longer — consider your lifestyle and current health. A good rule of thumb is that, on average, we live about 18 years past traditional retirement.

If your retirement will be spent in your current residence, take your current normal monthly expenses and multiple them by 80%. Most retirees can moderate their standard of living because children are probably (but not always) gone and some expenses associated with working full time have stopped. You also have more time for careful shopping and do-it-yourself projects to save money. Also, if your income is lower, your income tax rate will be too.

This is a fair estimate of what you need and for how long - if there are no surprises. Maybe you’ll need some help as you grow older? An assisted living facility can cost an individual between $20,000 and $55,000 a year with an average of $35,000. The cost for two averages about $45,000. Need even more assistance? Long term nursing home care can cost about $60,000 to $90,000 a year for an individual so don’t plan on staying too long (if you have the choice). You may want to give up your planning at this point, but don’t. There are many different care arrangements and sources of financial assistance including Medicaid for many seniors needing full time care. Let’s look at the “big picture” without extraordinary expenses and hope for the best — for now.

Your Financial “Big Picture” Plan
You need to examine your savings and assets and sources of income. We then consider an estimate of your living expenses and how much, if anything, you would like to have left over for your heirs. Time to get out paper, pencil and calculator and fill in the simple retirement financial worksheet below for several ages during your retirement. Insert these items:

Assets and Investments — List the current value of everything you own, or expect to own at retirement, including savings, investments, home equity, insurance, inheritances and anything else of significant value. Remember to list your debts and other big obligations and subtract these from your total. What’s left? It’s your net worth. Reduce this amount by the amount you would like to have left over for your heirs (see below). What’s left is what you can spend during retirement. Financial experts suggest you plan on withdrawing or “drawing down” about 4% of this annually early in retirement and 6 to 7% each year later on.

Left Over for Your Heirs — You can always change your mind, but this is the time to consider if you plan to leave something behind. Mentally, set it aside and develop your financial plan.

Sources of Income — List your expected annual income from pensions, Social Security, the “drawdown” or withdrawal from savings and investments, income from a retirement job and any other possible sources. Reduce these amounts by your estimated taxes.

Living Expenses — Total all your major annual recurring expenses including housing and utilities, food and meals out, transportation, healthcare and related premiums, regular other purchases, travel and entertainment and any other major expenses you expect. Remember, you may want to consider adjusting your lifestyle and resulting living expenses to make your money last.

Financial Category	Now	Age 65	Age 70	Age 75	Age 80
Assets & Investments NET TOTAL	$	$	$	$	$
Left For Your Heirs TOTAL	$	$	$	$	$
Sources of Income — Annually Pension Social Security Savings Withdrawal/Drawdown Retirement Job Other Sources TOTAL	$	$	$	$	$
Living Expenses — Annually Housing & Utilities Food & Meals Out Transportation Healthcare Other Purchases Travel & Entertainment Other Major Expenses TOTAL	$	$	$	$	$

Decision Time?
Are you worried about income and expenses? If you are still some time from retirement, there is plenty you can do:

Save More — Pay yourself first! Not saving? Start with a modest 2% to 4% and increase it as you reduce living expenses. Contribute to the savings plan at work or to an individual IRA and reduce your taxes at the same time — these contributions can largely be made on a pretax basis.

Earn More — Even if you cannot consider moving to a better paying regular job now, you can explore part time work. Even 10 to 15 hours a week could yield $3,000 to $5,000 for savings annually! You may find a job you want to continue after retirement.

Spend Less — Near term, start cutting living costs. Longer term, consider relocation or downsizing. Sell the second car. Eat out less often and cook from scratch. You get the idea.

Consider Some Risk — Look at your assets and investments. Can you tolerate investments with somewhathigher risk? Many people become overly cautious and lose out on the higher returns from riskier, but still sensible investments. Manage your money — don’t just leave it all sit idle in CDs and money market accounts while you are still somewhat younger.

Speak Up for Yourself — Get involved with politics, local and national. Start protecting your Social Security, pensions, and healthcare coverage. Let your opinions be known about income taxes, property taxes and sales taxes.

Get Information — There are many beneficial arrangements for seniors. One community allows seniors to work in the community and receive a discount of up to 50% off property taxes.

Maintain and Revise Your Plan
“Plans are nothing, planning is everything.” As you approach retirement, review you financial plan regularly. Has your net worth changed? Do you have new obligations? Should you get serious about that second job? How’s your health? What’s happening with the economy and investment returns? Can you save more? Have you changed jobs? Revise your plan and adjust your lifestyle — don’t wait. Understanding and acting on your financial “big picture’ can be frightening - even overwhelming. Too complex? Consider meeting with a financial planner or counselor. Often, excellent advice is available for little or no cost through governmental and community organizations for seniors or near-seniors.

Additional Tools and Resources
There is plenty of information and help available. Here are some of the best:

AARP — This is the premier advocacy group for Americans age 50 and older though their information and services are great for anyone thinking about retirement. Call AARP at 1-888-OUR-AARP (687-2277) or online at AARP.org.

CNN Money — This is a commercial website for the CNN broadcasting organization. Their website, CNNMoney.com is an excellent source of financial information.

MSN.com — This is the Microsoft information network. Among the wide range of information for seniors and retirees, MSN.com offers perhaps the best retirement planner calculator available on the Internet. Plug in your information about age, income, net worth and so on and it will tell you how long your money will last. It’s quick and will let you play around with every important factor you need to consider. You can find it at http://moneycentral.msn.com/retire/planner.aspx.

Now, get out there and start planning your retirement!

Robert Skladany is Vice President of Research & Certification at RetirementJobs.com. He has focused his career on the issues of mature and retired workers and the particular value they bring to the workplace and to employers in search of stable, productive and positive employees.