Today’s retirees are living longer than ever before and experiencing retirement in new ways.
Gone are the days when people worked 50 years for the same employer, retired on a predictable pension, and settled down into a quiet lifestyle.
Today’s retirees are more active—with baby boomers controlling 70% of the country’s disposable income. They’re traveling the world, learning new skills, and redefining what creates a retirement community. With 10,000 boomers retiring daily, this drive to enjoy a vibrant retirement is becoming more common.1,2
In addition, pre-retirees appear to feel more confident about retirement than years’ past, with two-thirds saying in a 2019 EBRI survey that they believe they can retire comfortably. One approach to maintain confidence in retirement is to assess your needs, look ahead, and prepare for both the known and unknown.3
While you can’t be certain what the future holds, you can strategize for the retirement life you want—and take these five steps to help you get there with confidence.
Step 01: Calculate Your Actual Costs
Only 42% of pre-retirees calculate a budget for retirement. Knowing how much money you need is critical when forming a retirement strategy.4
If you don’t identify your actual retirement costs, you risk leaving yourself without the necessary income to cover your expenses. Were you to find yourself in that gap, you might need to adjust your lifestyle.
You can build financial strategies that may help you become more confident by knowing how much your retirement might cost, identifying many of the expenses you can anticipate. Here are some questions to ask as you create your budget:
How much are my living costs?
Expenses can add up quickly in retirement. On average across all net worth levels, households run by people who are 65 years and older spend about $3,800 each month.5 Among affluent households, monthly spending needs can obviously run much higher.
To identify your costs, list every dollar you spend to support your daily living needs, from your transportation to your food. If you don’t have the appetite for this level of detail work, you can get a high-level estimate of your current spending by totaling up all income coming in, and seeing what is typically left each month. The difference is your average monthly spending need. And don’t fall for the conventional wisdom that spending in retirement will decline. While spending may decline for some retirees once they stop working, many retirees actually end up spending more as they have more time for travel and leisure activities.
What are my health care costs?
Health care expenses are the second-highest financial priority among retirees. A retired couple should prepare to spend $285,000 or more to cover expenses during their retirement years. A single man should prepare for $135,000, and a single woman, for $150,000.6
One choice that can help retirees prepare for health care is investing in a Health Savings Account (HSA). An HSA isn’t insurance, but it does provide a tax-advantaged savings account to which you, and potentially, your employer, can make contributions over time. You can use these funds to pay for most medical expenses, including prescription drugs, dental care, and vision care.
Keep in mind: If you spend your HSA funds on nonmedical expenses before age 65, it may be necessary to pay ordinary income tax as well as a 20% penalty. After age 65, you can take money out without the 20% penalty, but it may become taxable income. HSA contributions are exempt from federal income tax, but they are not exempt from state taxes in certain states.
What income will I have?
Income can come from a variety of sources, such as retirement accounts, pensions, part-time work, Social Security, and other sources. Tally up all income you expect to receive, understanding which sources of income will keep pace with inflation, and which will stay flat. If you have income that won’t adjust with the rise in inflation in the future, special planning is needed to make sure you don’t suffer from a constantly declining standard of living in retirement.
At Atlanta Financial, we have deep expertise in helping clients prepare for retirement through our Retire-ReadyFIT™ process. We believe that retiring is an opportunity to realize your best life, and we’re here to help you make that vision a reality. Stay tuned in the coming weeks for Step #2!
- MediaPost.com, 2019
- National Council on Aging, 2015
- Employee Benefit Research Institute, 2019
- Employee Benefit Research Institute, 2019
- MarketWatch.com, 2018
- Barron’s, 2019