Studies today suggest only three in ten people surveyed said they were very confident about their ability to sustain their standard of living as long as they live. I say good for them.
However, if you’re among the other seven in ten people surveyed who are less than very confident about their financial future, what are you supposed to do? These folks expressed uncertainty about the future of social programs (Social Security) and market performance. To this they added concerns about unexpected expenses (Long Term Care) and investment losses. To which can be added the fear of saving too little and simply not having enough money.
As I aged, and my years as a financial professional added up, my clients tended to get older. It became natural to focus on retirement and whether we’d have enough money. I have no statistical basis to determine how many of those clients transitioned to retirement and were confident about their financial future. I like to think I made a difference. Many of them I can no longer ask as they have passed on.
Today, I think too many people have never articulated a vision of what they want their retirement to look like. Retirement success is not just about having enough money to pay your bills. Sure, having a large nest egg is great. But that just puts you in the roughly 27% who are very confident in their ability to maintain financial stability in retirement.
Developing a vision for yourself will significantly help you. There is so much information out there, much of which is only about having more money. And much of that information is coming from those who want you to buy something from them. Or hire them to manage your money. How do you filter it and find the information that will help you specifically? Check out the free videos at Successful Retirement Secrets.
The closer you are to the magic date when ‘retirement’ becomes a reality, the harder it is to come to terms with what should be done to have the necessary confidence. There’s a reason so many of us continue to work beyond the traditional retirement age of 65.
As more and more of us are living longer and longer, we realize age 65 was imposed on us by earlier generations. I recall a recent statistic that said if you were a healthy couple age 65, the odds are 31 percent, almost one in three, that one member of a 65-year-old couple will live to age 95. The odds are one in 10, 10%, that one member of this couple will live to age 100. The dilemma for society is most people aren’t financially prepared to live that long or deal with the uncertainty of their actual lifespan.
To overcome this, and assuming you see yourself as years away from pulling the plug and not actively working to earn money, there are three things you need to focus on.
The first is to develop a strategic vision of what you want your last years to look like. It’s easy to blithely say you’ll live to 85 and then call it quits. Life doesn’t work that way. But if you do decide to stop working at 70, with an expectation of living to 95, you must reconcile this with your ability, or lack of, to subsist in society for another 25 years.
Where do you plan to live? What do you plan to do with your time? How will you deal with unexpected health care costs? Suppose your family decides you can no longer drive your car and you need to buy groceries? Yes, Amazon and Google may have automatic delivery services but that doesn’t happen without a cost.
The second is to better understand Social Security. (I have 159 blog posts on this website about Social Security) When is the appropriate time for you to claim your benefits? What if in a few years, they get cut? This year more will be paid out of the Social Security Trust Fund on an annual basis than is flowing into it from new contributions and investment growth. Without some fundamental changes, by roughly 2035, benefits will have to be cut.
Remember, it was never intended to get you through retirement by itself. It was intended as a safety net to make sure old people had some money coming in to provide shelter and food and other basics. At the very least, everyone needs to know what to expect from Social Security.
If you’re now still working, you must find a way to put as much as possible every month into some kind of retirement plan. Think of this as forced savings where the government allows you to defer the ordinary income taxes that apply to that earned income. If you’re under 50 you can set aside $6000 annually to an IRA or $7000 if you’re 50 and older. Once you reach age 70½ , you can no longer contribute to a regular IRA. You can contribute after-tax money to a Roth IRA however.
The third is a recognition that healthcare expenses in retirement are the elephant in the room. If you have more than enough earned income every year before retirement, and have maxed out the usual suspects like an IRA or your 401(k), then open an HSA or health savings account. If you qualify, you can add up to $3500 every year, deduct that amount from your earned income total, and not have to pay income taxes on the money when you extract it later to pay for legitimate health care expenses.
Too many people are having to declare bankruptcy because of Long Term Care expenses. For some it becomes a question of declaring bankruptcy or sitting around waiting to die. Not a good outcome for any of us. You may have Medicare, but it doesn’t cover Long Term Care.
So yes, a lot of it has to do with money. But having enough money can be a relative thing. What about downsizing to a smaller home? What about a reverse mortgage? Do you have a realistic budget that will allow you to be happy and sleep well at night? The sooner you can come to terms with what you want your financial future to look like, the more likely you are to gain confidence. Remember, tomorrow is the first of the last days of your life. Make it count.
Tony Kendzior \ October 1, 2019