RetirementJobs.com Staff Writers
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.