The generation born between 1946 and 1964 are referred to as the baby boomer generation, and they are now reaching retirement age. This large population is expected to live longer due to advanced medical diagnostics, treatments, and procedures. As this group ages, the assisted living industry demand will increase too as these seniors will need long-term care. This also means that this generation will need to save money for this necessary expense. The big question on the minds of many baby boomers is, Have I saved enough for retirement?
Questions to ask to be financially prepared:
What will your cost of living be in retirement?
When retirement planning, you will need to first analyze how much you need to spend annually to live comfortably. This calculation is not the same for everyone. You will need to determine where you are on the lifestyle spectrum. Do you plan to live in a manicured community, drive a luxury vehicle, and travel? Or will you lead a simpler lifestyle where you buy used cars, eat at home most of the time, and live in a more modest neighborhood? How you expect to live during your retirement will impact how much you need to save now.
If you are serious about your retirement planning, you need an understanding of how much it costs for you to live. To get an accurate picture, we suggest that you track your expenses for at least one year. There are many helpful online resources to organize your expenses and determine your bare minimum or fixed expenses. Quicken, Mint.com, an Excel spreadsheet, or using a paper journal are all options to help you assess your average monthly expenses.
Also, the first phase of your retirement may include more travel, dining out, or leisure pursuits that you now have the time for. Don’t forget to budget in a few luxuries and be as realistic as possible of your ideal expenses. Overall in your retirement years the most substantial costs will be housing, healthcare and transportation. Determine the age of your car at retirement and if it will need to be replaced. Review the expense of your home. Do you need to move to a more affordable part of the country? Is your house paid off or will you have a mortgage? What is your health status? Are you already aware of health care issues you should plan for? If you’re relatively healthy you should still consider health care needs that come naturally with aging, as well as your family history.
Will your retirement funds last as long as you need?
Now that you have your realistic monthly expenses determined, then you need to assess where you are with your nest egg. As we said, life expectancies are longer today. According to the U.S. Social Security Administration, the average male is estimated to live until 84.3 and the average female after age 65 is expected to live to 86.7 on average. And one in four seniors will live past 90, while one in ten 65-year-olds are expected to live past 95. So, a reasonable assumption to determine if your savings will hold up is 30 years.
Again, there are useful online calculators to help you determine all the line items included in your nest egg. Determine what you will get from social security, what you have in savings, a pension, investments, and any other income. Many calculators are free to use online.
According to a recent Allianz study, baby boomers surveyed are fearful of outliving their savings. One easy way to determine if your savings will last is to apply the 4% rule. The 4% rule is if you were to withdrawal 4% of your savings balance in your first year of retirement and then you regulate subsequent withdrawals to account for inflation, then your savings should last for 30 years. This rule is not perfect but can be a good starting point to evaluate your retirement savings.
Will your savings generate enough cash during your retirement?
To ensure that your money will last, one conservative solution is to avoid dipping into the principal of your savings. Instead, let the income and investment gains of your portfolio cover your living expenses, along with any other income sources, and social security. You want to safeguard that you have a sustainable spending rate in your retirement plans.
But keep in mind, you don’t want to be so conservative that you miss out on the pleasures and rewards of a lifetime of hard work. A good certified financial planner can be an excellent partner to assess your financial situation and help you plan for splurges.
Can long-term care insurance help your financial picture?
When determining your retirement planning, long-term health insurance may be a consideration. According to the U.S. Department of Health and Human Services, approximately 70% of seniors will need long-term care. When looking at your financial picture, long-term care insurance may be an option to pay for this needed care. It can be a pricey purchase. But if properly budgeted for, it can pay off if you are among the 70% that will utilize it.
Long-term care insurance is intended to cover the expense of support and services when an individual can no longer care for themselves. It will help with costs whether that is in-home care, at an assisted living or memory care community, hospice, or a nursing home. The range of care options and benefits can be selected by the policyholder and typically covers what health insurance, Medicare, and Medicaid will not.
It’s never too early to plan for your retirement income, but all is not lost if you are closer to retirement age and still have money to save. Determine a clear picture of where you are financially and make a realistic plan based on your situation. Consider getting a financial planner who can help you set goals and stick with a retirement plan. Retirement planning can be challenging, but there are many online resources and tools to help you.