As a retirement specialist, I see people from all backgrounds with different levels of net worth and goals. In fact, it’s one of the joys I get from my profession. I get to meet people from all different walks of life. That said, there is a commonality among everyone I meet: They are afraid of running out of money in retirement. A recent study from Allianz Life Insurance Company found that nearly 63 percent of baby boomers fear running out of money more than they fear death!
The two leading reasons people run out of money in retirement are from skyrocketing health care costs and living beyond their means. We’re not going to cover health care costs in this article, as that topic alone could take up this entire writing. Instead, we’ll focus on living within your budget.
No matter what retirement timeframe you’re on, it’s never too late to start preparing, both mentally and financially. It starts with creating a budget, and the budget starts with calculating your income. Make sure you are considering only the net amount you will receive from Social Security, your pension, and withdrawals from your savings. Then you want to list each monthly expense and accurately establish the total amount. The interesting challenge here is determining what your actual expenses will be in retirement, and if they will change over time. I like to think of retirement in three stages: the go-go years, slow-go years and no-go years.
The go-go years are what you think of when people say “golden years.” It’s only natural to want to splurge, so it’s important to create a plan that allows for some splurges. Having an accurate spending plan for this stage is crucial; you don’t want your travels and fun to derail the rest of your retirement. The important takeaway here is budgeting this stage into your overall financial plan. One of the reasons you saved all of these years was to take that trip to Europe or that cruise to Alaska!
The slow-go years are next. Longevity and health issues become a concern. According to U.S. Census Bureau, over the next four decades, the 90-and-older population is projected to more than quadruple! Have a plan and be prepared for these extra years. You may not travel as much during the slow-go years, but health care costs can start to increase, and planning for these costs can help minimize surprises. Having the proper Medicare supplement plan is an important factor to consider, as that will affect your budget as well. Other insurances are best put in place during these years, if they have not been prior.
Once you have enjoyed your go-go years and have endured your slow–go years, what do you have to look forward to? The no-go years, of course! More focus on health care may be required for you and your loved one during this time, whether it be assisted care or in a nursing home. As of 2018, the average cost of assisted living per month in Maryland is $3,820 with average monthly rates ranging from $1,820 to $9,020 per month. This means you could spend a total of $21,840 to $108,240 annually. These figures can sound daunting, but part of the reason you have saved all of these years is to be prepared for this. That is why you have a budget and savings plan.
A Gallup poll found that only 32 percent of Americans maintain a household budget and only 30 percent of Americans have a long-term investment plan that includes savings and investment goals. Making sure you are a part of that 30 percent should be your first priority. Being ready for the stages of retirement doesn’t have to be a scary thought if you have actively prepared and already live within your means. Establishing an appropriate budget can be as straightforward as mentioned above. You can always ask a financial professional to assist you if needed. When a person decides to make retirement planning a priority, the first step is establishing goals, then a budget, and then a plan to meet those goals. Creating the plan is the easy part. The hard part is actually living the plan and staying within the numbers!
Opinions expressed are that of the author and are not endorsed by the named broker dealer or its affiliates. All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.
Premier Planning Group is an independent firm with securities offered through Summit Brokerage Services Inc. Member FINRA, SIPC. The firm is located at 115 West Street, Suite 400, in Annapolis.