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Frequently Overlooked Retirement Costs

Frequently Overlooked Retirement Costs

Jan 2021

Think you know how much you’ll need to retire comfortably? You might want to think again. According to the Schroders Global Investor Study 2018, which surveyed more than 22,000 investors from 30 countries, 15% of retirees lacked sufficient income to support a comfortable retirement. Moreover, the research found that people anticipate budgeting 34% of their retirement income for basic expenses but actually require nearly 50%. This disparity is understandable given the many unexpected changes that can occur during this phase of life. With that in mind, here are some costs that are often overlooked or underestimated when planning for retirement.

Taxes. No more employer means no one is withholding income taxes from your Social Security check each month (unless you specifically request it from the Social Security Administration)— and that can lead to an unwelcome surprise at tax time. Many retirees don’t realize that their Social Security benefits are taxable as income, so it’s important to plan ahead for any retirement tax bills. And you’ll pay taxes on withdrawals in retirement from your traditional (but not Roth) IRA.

Home Maintenance. Hopefully you’ll remain robust enough to continue to maintain your home yourself during retirement, but it’s often wise to put aside a little extra in case you need to make routine repairs or hire outside help for some home maintenance tasks you’ve been handling such as lawn care, laundry and general housekeeping.

Medical Costs. While many retirees are often pleased when they’re finally Medicare eligible, they’re often surprised when they learn that some costs are not covered under the government plan. For example, many dental, vision and other expenses (e.g., hearing aids) are generally out-of-pocket expenses and can run in the thousands of dollars. Also, Medicare premiums, deductibles, copayments, coinsurance and medication costs can add up once you’re no longer on your employer-sponsored health insurance plan.

Aging-in-Place Renovations. Many retirees want to be able to remain in their homes as opposed to receiving care in an assisted living or nursing home facility. Often, however, modifications to an existing floor plan to accommodate wheelchair access or a live-in caregiver become necessary. For example, you might require a walk-in tub or shower, grab bars or an entrance ramp to your home. While needs in this area can be hard to predict, additional dollars in your emergency fund to cover such renovations constitutes smart retirement planning.

Home Care. While we all hope to maintain our independence throughout our lives, the reality is that most of us will require some additional help with activities of daily living as we age. And the cost of this assistance isn’t cheap. Purchasing long-term care insurance is one way to plan for this expense, but that can be quite costly as well. Another option is relocating to a state with more favorable Medicaid benefits. Speak with your advisor about this essential part of your retirement plan.

Family Assistance. Many retirees want to be able to help out their children, grandchildren and extended family. You may wish to contribute to a college fund, treat your grandkids to a nice vacation, or help your children with a first home purchase. Try to anticipate these wants and budget for them accordingly.

Vehicle Replacement. For many retirees, retirement can last for decades. So it’s likely that you’ll need to replace your car at least once or twice if you continue to drive. This can be a significant expense to cover if not budgeted for ahead of time.

Inflation. Again, with many retirements lasting 20-30 years, it’s important to take inflation and the degradation of your retirement dollars’ purchasing power over time into account. This can be a complex cost to calculate, and it’s another good reason to consult with a professional.

Retirement is an exciting time of transition that brings with it many changes to your budget and lifestyle. Speak with your financial advisor to help you create a realistic budget that will anticipate as many of your retirement expenses as possible. Then, when the time comes, you’ll be in a better position to sit back and enjoy the adventure.

#costreduction #overlookedcosts #wellcents #financialwellness

Sources:

1. https://www.schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-investor-study-2018-people-significantly-underestimating-cost-of-living-in-retirement/

2. https://www.advisortoday.com/2018/07/17/people-underestimate-cost-of-living-in-retirement/

3. https://www.ssa.gov/planners/taxwithold.html

How Much Will I Actually Need to Retire?

How Much Will I Actually Need to Retire?

Jan 2021

There are many formulas for figuring out how much money you need to retire. Almost all of them can end up being wrong for a variety of reasons.

Let’s face it: We love fast food, and we love “fast-food” formulas - simplistic rules of thumb that we can use instead of actually thinking about a problem in depth. The retirement investing space is filled with these. Some say you need eight-to-12 times your current annual income or that you should have 25 times your annual expenses, 80% of your income at the time of retirement or - and this is a good round number - $1 million.

While thinking seriously about retirement finances is useful, for most people, these formulas aren’t going to come close to what your retirement actually looks like.

Taking Stock

To truly get comfortable with your retirement plan, the first thing you need to do is actually plan your retirement. How long are you likely going to live based on averages, genetics and behavior? What will be meaningful and enjoyable to you after you finish working full time? Do you plan to travel or pursue a hobby? Where do you want to live? And what’s your style - hanging out at a pricey country club restaurant every night, or cooking for yourself and staying in? Do you expect to go shopping at trendy boutiques weekly, or are you more of a “I bought these pants at the Gap five years ago, and they still look good” person?

In short, it’s your lifestyle and your length of life that will drive your financial needs once you’re no longer working. To gauge your needs, try this exercise. Carve out a couple of hours of quiet time. Turn off your phone, close your email and tell your family members to leave you alone. Better yet, maybe you and your significant other can take a long weekend in a place that’s comfortable, but not so fascinating as to be distracting, and do this together.

Think really hard about what “retirement” means to you. At a younger age, “not having to go to work” seems like what retirement is - and should be - all about. But if your mentality never evolves beyond that, then you can’t take full advantage of new opportunities. Instead, think about your bucket list - places you want to go as well as experiences you want to have.

Think about how you want to live your life and where. Living in a dense urban area affords you easy access to cultural amenities like concerts, festivals, museums and more. However, it may be more crowded than living in a suburb, exurb or rural area. If you do live in the city, you probably won’t need to drive a lot, and you may not even need a car at all with easy access to public transportation. Have you considered moving to another part of the country? Or even another country altogether? Tens of thousands of people do. Some hate it and come back, but many find it’s an adventure that keeps them engaged.

List things that would be meaningful to you. They may be volunteering for a charitable organization, mentoring others, or painting, gardening, beekeeping, birding or learning to play the zither.

Now your future is starting to come into focus. Extend the exercise by imagining what an average retirement day is going to be like: Where will you be? And with whom? Doing what?

How Much is Enough?

Once you have a fix on your future - the where, the how, the what and with whom - it’s much easier to put actual numbers on that lifestyle. Multiply that need by the number of years you expect to live - taking into account slowing activity as you get older - and you’ll come to a much closer estimate than any formula can provide. Throw in a little extra for increasing lifespans. Want to feel optimistic? Here’s what the Social Security Administration’s actuarial scientists say: “That mortality rates are found to continue to decline, at every age for which adequate data are available, demonstrates that no absolute limit to the biological life span for humans has yet been reached, and that such a limit is unlikely to exist.”

Write a brief overview of your conclusions and then schedule a conference with your financial advisor. With a clear picture of where you want to go, he or she will be able to help you build a solid map of how to get there.

Be optimistic: Retirement really can be some of the best years of your life.

#retirement #wellcents

Source:

http://www.ssa.gov/oact/NOTES/as120/LifeTables_Body.html

Evaluate How Much You Need for Retirement

Evaluate How Much You Need for Retirement

Jan 2021

Many people who are saving for retirement haven’t taken the time to figure out how much they may need when they retire. Financial planners who do pension consulting point out that saving without a goal could leave you in trouble when you reach retirement. After all, how do you know if you’re saving enough if you don’t know how much you may need?

Factors to consider - One way to start figuring out how much you’ll need in retirement is to look at how much you’re spending now. That will at least provide you with a starting point. Remember, though, your expenses will change after you retire:

  • Expenses that may go down include income taxes, mortgage payments (particularly if you downsize), utilities, and expenses for children. Also, you may save money on commuting expenses (including gas, tolls, car payments, and insurance) and other work-related costs like clothing.
  • Expenses that could go up include travel and entertainment costs and health care. While joining Medicare can reduce your expenses, you may need additional insurance and your costs may go up if your health declines.

Most financial advisors believe you’ll need about 80 percent of your current income in retirement to maintain your current standard of living1.

Review Your Income - You’ll need to assess any income you’re going to receive in retirement, such as Social Security, a pension, rent from property you may own, or other recurring income you receive.

Once you add up your income and subtract your expenses, you’ll know how much you need have saved by the time you reach retirement.

Tags: retirement planning, retirement, evaluate

7 Tips To Prepare You for Retirement

7 Tips To Prepare You for Retirement

Jan 2021

A secure and enjoyable retirement doesn’t just happen. You need to plan for it. And the sooner you start planning, the more time you’ll have to make changes and adjustments to meet your retirement goals.

Here are seven things you should consider for your retirement plan.

What will you do? Retirement could last 20 or more years, and you’ll probably need to find something to do with that time. Most happy retirees set goals for themselves. Also, you should have some idea of what you want to do to make sure you can pay for it.

Will you work? More and more people plan on working after retirement. If you do, make sure you realistically assess the opportunities for the kind of work you want to do.

Where will you live? This is going to be affected by other decisions, like what you want to do after retirement. If you want to spend time with your family, you’ll need to live nearby. If you plan to work, you need to make sure you live near potential job opportunities.

How much will you get from Social Security? You can get a personalized estimate of your SS payments at ssa.gov/myaccount. Make sure you look at how your benefit changes depending on what age you are when you sign up and how best to coordinate with your spouse (if applicable) to maximize your benefit.

How much additional money will you need? Once you know what you can expect from Social Security, you need to determine if that and your other assets are enough to pay your monthly bills.

Do you have health insurance? You’re eligible for Medicare at age 65, but you’ll almost certainly need some form of supplemental insurance as well. If you retire before 65, you’ll need to find another form of coverage until then, either through private insurance or your state’s health insurance exchange.

Have you stress-tested your finances? The unexpected will still happen – you may need a new roof, a new car, or have an unexpected health issue. Make sure you’ve got an emergency fund to help you get through these situations.

Tags: retirement planning, retirement

1 https://www.investopedia.com/retirement/retirement-income-planning/

Kestra IS, Kestra AS, and NFP Retirement do not approve, endorse, nor are affiliated with these sites or any of the material contained therein. NFPR-2019-72 ACR# 324845 8/19

Where to Stash Your Emergency Fund (Hint: Not the Mattress)

Where to Stash Your Emergency Fund (Hint: Not the Mattress)

Jan 2021

One of the best things you can do for your financial wellness is to set up an emergency fund that covers at least three months of your regular household expenses. It may take time to set aside this amount of money, but once you do, it can take a lot of pressure and stress off of you should the unexpected occur.

But the question is, where should you put this money? Hint: It’s not under the mattress. What you want is a place that will be relatively safe from fluctuations in the stock market and broader economy. You also want your funds to be relatively liquid, which means they are easily convertible to cash that you can readily spend.

The following are options to consider for your emergency fund:

Money Market Accounts. Money market funds are designed to maintain a stable share price of $1 per share. And this is usually the case, although they can breach that benchmark during an intensive market downturn. Money market funds typically give a fairly low but steady rate of return. However, unlike many bank accounts, they’re not generally FDIC insured.

No-Penalty Certificates of Deposit (CDs). CDs are commonly available in very short (1-3 month) to long (5-10 month) maturity dates. These shorter-term CDs are usually FDIC insured and can be an appropriate place to hold emergency funds as long as you can wait until the maturity date. Typically, there’s a penalty for early withdrawal, although some offer a no-penalty option that can be more convenient for your emergency fund. You may however, sacrifice a higher interest rate for the flexibility of no–penalty withdrawals.

High-Yield Savings Accounts. These are available through brick-and-mortar banks as well as online institutions. Typically, online savings accounts offer the highest yields - and often significantly higher than traditional institutions. Make sure that whatever bank you select, your funds are Federal Deposit Insurance Company (FDIC) insured. According to the FDIC, “The standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category.”

Roth IRA. This can be another good place to hold your emergency funds. Unlike a traditional Individual Retirement Account, taxes are paid prior to deposit (as opposed to deferred), and there’s no penalty for early withdrawal on your contributions, although withdrawals on any earnings may be subject to income taxes and a 10% penalty, depending on your age and how long the account has been established for.

Treasury Bills. You can purchase a Treasury Bill, or T-Bill, with a maturity date anywhere from a few days to 52 weeks with a minimum investment of only $100. You buy them at a discount and then receive the full face value on their maturity date. T-Bills are backed by the full faith and credit of the United States Government and are considered very safe.

The last thing you want to have happen when you have to tap your emergency fund is to find out its value has been diminished because of unfortunate stock market timing. Keep your fund safe and liquid while minimizing risk so that you can be confident your fund will be fully available to you when you need it.

Sources:

1. https://www.fdic.gov/deposit/deposits/faq.html

2. https://www.investopedia.com/roth-ira-withdrawal-rules-4769951

3. https://www.investopedia.com/terms/t/treasurybill.asp

Securities may be offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services may be offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement, Inc., a subsidiary of NFP.


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