Do You Have Enough To Retire?
Retirement isn't that complicated. You either save enough -- or you come up short. But answering the question "do I have enough money to retire?" requires some homework.
First, you need to save enough money to cover your ongoing retirement expenses and it takes time. That's the savings part.
But you also need to know -- or at least come up with a decent estimate -- of how much you will spend in retirement. That you can do while you're saving years in advance of your retirement date.
Projecting your retirement expenses is a good thing to do around the beginning of the year or during tax time. Then you'll have a pretty good idea of your annual expenses and you can put them into a calculator.
What do you need to know on the spending side? Look at all of your major expense items and project them into retirement. Keep in mind that most people don't like to make radical changes in their lifestyle, so an accurate tally is helpful. Here are some major categories:
-- Housing (rent or mortgage, property taxes, property maintenance)
-- Food (including out-of-home meals)
-- Healthcare (insurance, out-of-pocket medical, long-term or home care)
-- Transportation (do you plan to travel more or visit family out of state)
-- Miscellaneous Expenses
Of course, none of these expense estimates are written in stone. You may reduce your expenses by moving or downsizing. Or you may ratchet them up by spending more money on travel.
So doing a spending estimate involves a bit of planning on how you want to live. Making few changes makes the process easier, but things can change. You may want to move closer to family or even buy a larger living space.
In any case, crunch your spending numbers. I suggest using an expense calculator.
The Last Spending Questions
When you have all of your numbers and come up with a monthly spending total, then you need to ask one essential question: What will change? Here's how you break down that question:
-- Do you plan to move and downsize your housing expenses?
-- Will your move involve any changes in your tax situation? Some states charge little or no state income tax.
-- Will your spending change in significant ways? For example, you may want to spend more money on travel and entertainment? If so, by how much? Will other spending decrease?
-- What will your health care out-of-pocket expenses look like? Medicare doesn't cover everything, but you can buy private supplemental "Medigap" policies to cover out-of-pocket expenses on drugs, doctor and hospital care. How much will the policy cost?
Here's where the rubber meets the road: Will you have enough in your savings to cover your living expenses? If you're coming up short in your estimates, then you can either save more now or reduce expenses later.
Keep in mind that every mutual fund and brokerage company offers retirement calculators. Use them in your planning. They can also tell you how much you need to save to close the gap between savings and spending -- if you have one.
Also, the practical financial implications of longer life spans must be incorporated into retirement plans. This means retirees will have to plan for longer (and thus greater) income needs and the possibility that expensive health-care treatment will eventually be needed as they get older. Annuities offer a great solution to hedge against longevity risk.
Find out more here: How Annuities Help Cover Long-Term Care Costs.
by John Wasik | Jan 17, 2017
Author: John Wasik
Source: Forbes Media LLC
Retrieved from: www.forbes.com