Four Hurdles on the Way to Retirement

What’s next after you have managed to help pay for your children’s college educations and weddings? For most long-time wage-earners, the answer is a safe and secure retirement. Unfortunately, that is usually easier said than done.

Before you can rest on your laurels, you must overcome several hurdles along the way, including the following:

1. Retirement is costly. It has been estimated that you will need about 70%–80% of your current income to maintain a similar standard of living in retirement. Although Social Security benefits may provide some relief, that will not be enough on its own. In fact, there is a great concern that the growing number of baby boomers who will become eligible for Social Security over the next few decades will place an unmanageable strain on the younger workforce. (At this writing, proposals to revise the Social Security system are being considered.)
2. You could outlive your assets. Due to medical advances and increased education about healthy living, life expectancies have been on the rise. Currently, Americans are expected to live around 20 years on average in retirement (assuming retirement at age 65) – maybe more. If you do not have a retirement plan that can provide a stream of income, you might exhaust all of your funds.
3. Health insurance costs keep escalating. There is no end in sight to spiraling health care expenses. Considering the growing number of aging Americans, it is important to ensure you have adequate coverage to last through your retirement years. Medicare alone probably will not do the trick.
4. Inflation can rear its ugly head. Since inflation has been relatively low the last few years, it is easy to forget its potential impact. Inflation can affect your purchasing power and, eventually, your standard of living. Just think back to the rampant inflation of the late 1970s and early 1980s. Furthermore, even without a period of double-digit inflation, the cost of goods and services generally increases over time.

The bottom line is that retirement planning isn’t a luxury; it’s a necessity. You can improve the odds of securing a comfortable retirement by saving diligently through your working years.

Begin by taking advantage of tax-advantaged retirement planning vehicles such as qualified retirement plans and traditional and/or Roth IRAs (individual retirement accounts). Allow for emergencies and other big-ticket expenses like a child’s college education. Complement your retirement plans with a sound investment plan that balances your need for income during retirement with your personal tolerance for risk.

Elaine_Norton@mnccpa.com