My Comments: As someone already retired, I can tell you not being assured there’s enough money on hand to sustain our chosen standard of living is a source of constant stress. That may be caused by a personal history that started as a child or it may be because there really isn’t enough money in the “bank”. Only time will tell.
Whatever the case, for millions of Americans, having “enough” when you retire is never an easy conclusion. There are too many variables for which finding a realistic and easy answer to the question makes having “enough” an almost impossible conclusion. All you can do is set yourself up as best you can and then hope it all works out.
By Matt Dixon \ Mar 18, 2022 \ https://tinyurl.com/4kx67h9e
Planning for retirement comes down to one question: “How much money do I need to retire?”
Though there are all types of retirement formulas you can use to gauge how much money you need in retirement, most of them don’t take into account six very important issues that can affect your money after you’ve retired.
If you want to create a more in-depth plan than just socking money away in a retirement account and hoping for the best, make sure you take into account these six factors when determining how much money you’ll need for retirement.
1. You’re no longer saving.
Consider that whatever you’ve been investing into your retirement account stops when you hit retirement. That’s when you switch from adding to those accounts to drawing from them. If you’re currently adding an additional $1,000 a month to your retirement accounts, deduct that from the amount of money you think you’ll need in retirement.
2. Don’t forget to account for taxes.
When you look at the numbers in your tax-deferred retirement accounts and Social Security, you’re probably not thinking that a portion of the money in those accounts won’t go to you—it’ll go to the IRS. Remember to deduct what you’ll pay in taxes from the balance you see pre-retirement and adjust your calculations accordingly.
3. Social Security will be a bigger portion of your income than you think.
The average retiree withdraws about 3-5% from their retirement assets such as stocks, IRAs and 401(k) plans every year. During pre-retirement planning, investments like these are how they imagine they’ll fund their lives in retirement.
What many people forget is that Social Security makes up a large chunk of what most retirees spend in retirement. Quietly over time, you’ve probably amassed an impressive Social Security account that will add a strong dose of income to your retirement.
4. How long will you live?
Unfortunately, in the math of retirement, the big unknown is how long you’re going to live. Right now, the average life expectancy in the United States is about 77 years. That being said, the very last thing you want to do is outlive your money. I always plan for my clients to live to 90 or even 95, just in case. If you die earlier than that, then you leave some money to your heirs. That’s certainly a better option than outliving your money and depending on the kindness of your children, or the government, to support you in old age.
5. Plan for unexpected costs.
Your costs will change as you retire. You won’t be saving for retirement anymore, and you may also save on other costs if you’re no longer paying a mortgage, commuting, sponsoring business lunches, etc. That leaves you with extra room in your budget.
On the other hand, you’re likely to have extra expenses in retirement that you’ll need to account for. These include medical expenses, which tend to cost more and more with age. You may end up needing long-term care, which is famously expensive. Also, if you decide to purchase a Medicare supplement plan, you should figure that into your budget.
6. Remember required minimum distributions.
At age 72, the government requires you to start drawing from any tax-deferred accounts because it wants you to pay taxes on that money before you die. So even if you don’t need the income, you’re going to be forced to take 3.5% of your money out of your accounts every year and pay taxes on that money.
Retirement can be golden when you plan for it correctly.
Retirement planning can seem overwhelming, with so much to remember and so much riding on your pre-retirement decisions. But it doesn’t have to be. When you educate yourself, make smart decisions and draw on the knowledge of professionals to help you plan for retirement, your golden years can truly be golden.