According to a 2019 report from the Employee Benefit Research Institute, about 40% of all U.S. households whose heads are between the ages of 35 and 64 are expected to be short of retirement benefits.
If that news isn’t alarming enough, remember that we’re living longer than our ancestors.In 1940, life expectancy for a 65-year-old was almost 14 years. Today it is just over 20 years old.
To help you prepare for the transition to retirement, consider meeting with a financial advisor before your target date to help you understand how retirement will affect your finances.
This analysis should be comprehensive, including a review of assets, liabilities and income sources. In addition, insurance policies and property planning documents should be analyzed. Before you take the final step toward retirement, it’s a good idea to go through all the financial details.
Identify goals and objectives
Identifying what you want is one of the keys to a successful retirement. Another key is understanding the long-term and short-term economic implications of achieving those goals. Retirement will be a time of transition with many details to consider. Should I enroll in long-term care insurance? What are your Medicare options? Selling your home or business? How will the sale of my property affect my taxes? Where are you planning to live? Moving to a state with no or low income taxes and relatively high property taxes? How much will you earn in retirement? Identifying what will change in your retirement life and how those changes will affect your finances can help align your financial plans with your life goals.
make a budget
A budget is a personal plan for managing your money. Provides an opportunity to identify and monitor spending. Simple as it may be, it is the foundation of sound money management.
Budgeting begins with monitoring a specific period of time, such as a month. You should track your income and all expenses during this period. Budgeting not only records all fixed expenses, but also simple purchases that we tend to forget, such as quick snacks. At the end of the period, a budget provides a transparent snapshot of your income and where you spend your money.
repay the debt
Ideally, you should have paid off all your debts, including your mortgage, before you retired. Taking on new debt in retirement can be a recipe for disaster, especially if you’re living beyond your financial means. Spending more money than you have is bright danger It’s a signal and can negatively impact your retirement. To prevent such consequences, evaluate what you can do now to eliminate and manage your debt.
save, save, save
How much do you need to save to transition to retirement without sacrificing your standard of living? Market volatility is inevitable, so evaluate your investments annually to see if your strategy is suitable to meet your anticipated future needs. It is recommended that you judge
Conventional wisdom says that from a portfolio of 60% stocks and 40% bonds, you should plan to withdraw 4% of your assets (adjusted for inflation each year) for about 30 years.
In practice, the amount you should withdraw depends on many factors such as age, net worth, portfolio allocation and current economic conditions. In some circumstances, the annual withdrawal rate is less than his 4%.
Understanding how inflation affects purchasing power
Inflation describes how much a set of related goods or services has become more expensive over a period of time, most commonly a year. This is usually a broad measure, such as an overall increase in prices or an increase in the cost of living in a country. Annual inflation in 2021 is 7.0%, the highest since June 1982, according to the US Inflation Calculator.
Inflation this year is more than 8.0% higher than a year ago. To keep inflation in check, the federal government has raised the federal funds rate four times, and may raise it again by the end of the year. Their aim is to slow down the economy by reducing overall consumer demand. Consumers will ultimately have less money at their disposal as the cost of mortgages, lines of credit, auto loans and credit cards rises.
Another important point to understand is that inflation affects the purchasing power of cash. If wealth does not increase with inflation, the decline in purchasing power will eventually lead to lower living standards. That’s why it’s so important to grow your assets over time.
Understanding Social Security Benefits
Although the average Social Security income is well below the recipient’s U.S. poverty line, many retirees rely on Social Security as their primary source of income. About 45% of adults and 21% of couples depend on social security for more than 90% of their income. $1,555 is the average monthly benefit, according to her June 2021 beneficiary data from Social Security. That’s an annual income of only $18,660.
Before signing up for social security benefits, make sure you understand the different options available. Retiring early at age 62, fully retiring at age 66 or 67, or delaying retirement until age 70 all have different consequences. The longer you wait to receive your benefits, the more you earn. In other words, the longer you wait, the higher your monthly income from Social Security. If you retire early at age 62, your benefits will be about 30% less than if you waited until full retirement age. Delaying benefits and starting at age 70 is 24% to 32% higher than full retirement age.
Apply for Medicare
Medicare is the US federal health insurance program for people over the age of 65. This program helps with medical expenses, but it does not cover all medical expenses or most long-term care costs. You have choices about how you get Medicare coverage. If you choose to receive Original Medicare (Parts A and B) coverage, you can purchase Medicare Supplement Insurance (Medigap) from a private insurance company or apply for Medicare Advantage.
If you did not receive Social Security benefits one to three months before your 65th birthday, you must complete your Medicare application at www.ssa.gov. If an employee is enrolled in a large group plan of 20 or more, she may only be required to enroll in Part A and not Part B. If you don’t enroll in Medicare Part B in a reasonable amount of time, you will have to pay a penalty. As long as you have Part B insurance. For more information, contact the Center for Medicare & Medicaid Services at www.cms.gov.
In conclusion, before you retire, take the time to reflect on what you want and identify key questions to address with your financial advisor so you can plan for a successful outcome. Being fulfilled, focused, and acting purposefully are the best things you can do to prepare for retirement. Unfortunately, not planning for retirement or living within your means can have negative consequences. This could result in job cuts, job gains, or bankruptcy filings. Certainly, this is not what you planned or dreamed of when you retired.
Your Golden Age should be a rewarding result for a lifetime of work. Consider a solid plan and make sure it’s executed.
Teri Parker is Vice President of CAPTRUST Financial Advisors. She has been practicing financial planning and investment management since her year 2000. Please email Teri.parker@captrustadvisors.com.
