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Things to Consider When Planning for Retirement

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    Planning for retirement is arguably the most difficult thing you'll have to do in life, when it comes to finances and how it effects the rest of your life. And the problem is its not very straightforward and if you don't plan correctly you could find yourself scrambling just to afford the bare essentials. Lots of guesswork involved and of course, math.

    Hoping this forum helps and we can start a conversation for the best practices and considerations for planning for retirement, especially for those nearing retirement and expecting to live on a modest income.

    Here are some considerations I have come across to begin this with, just by googling around:

    1. Inflation. It's no secret the value of the dollar degrades over time. Every year in fact your dollar doesn't go as far as it did the year prior. Most agree the annual inflation is about 2-3% a year. The last 10 years (2008-2018) we saw an annual average of 1.6% but historically its been even a bit higher.

    And its smart to just assume 4% for cushion. Cyclical market crashes and unknown economic events can and will effect inflation in a negative way in the coming years. So if you are say 10 years away from retirement, whatever your budget is today, it needs to account for the loss of buying power with the money you saved.

    You can calculate 'expected inflation' with a number of online calculators. Here's one aimed specifically at retiring.

    2. Healthcare Costs. This is a very important one. Get this, Fidelty says that a 65-year-old couple retiring in 2018 will need an estimated $285,000 to cover their expenses in retirement. And Healthview Services says its even higher -- $363,000.

    Now luckily some of those expenses can be covered with Medicare and supplemental health insurance. But with such a high number and depending on what you expect to pay yourself (which again is likely impossible to correctly predict the further you are away from retiring), you can consider purchasing long-term care insurance or invest in a health savings account (HSA) to mitigate this massive expense down the road.

    3. Taxes. Another article points out that unless all your retirement savings are in a Roth account, you will be paying taxes on your retirement savings. So whatever number you have set aside for retirement, you need to calculate the taxes of withdrawing from it and plan accordingly otherwise it will come as an unwelcome surprise at the worst time.

    You can consider hiring a fee-only financial planner for this. Just to get all your numbers in order. That's not a bad idea; small price to pay usually for peace of mind.

    4. Investments. If you are invested in a combination of stocks and bonds with a financial advisor and plan on pulling from that come retirement, there is some development here. Your advisor might be following an old 'safe' strategy of investing that isn't returning the yields it should.

    I recommend checking out this article from Fortune and even bring it up with your advisor (if you are doing so) to rework the strategy. Basically it boils down to investing in the stock market when you are younger and as you get closer to retirement traditionally advisors move money into bonds. The problem with that is it doesn't account for market up's and down's. So your money could unnecessarily be sitting in a bad market for years because your advisor is sticking to an outdated strategy.

    So you have inflation, healthcare costs, taxes and investment strategies to consider. But also of course Social Security benefits, spousal savings and benefits, and picking the best age to retire, as well as trying to correctly calculate (however morbid to some) of how long you expect to live.

    Most assume they only need 75-80% of their current income come retirement because they expect their expenses to decrease once they retire. While this may or may not be true for you, just consider whatever number you come up with, that will dictate exactly what you are able to do once a job is off the table. So traveling, hobbies and helping out family members and the like should be factored in as well, adjusted to your personal preferences and needs.

    Again, this calculator is good start -- Retirement Planning Calculator. Feel free and add anything I missed here that can help. Complicated subject.. maybe others can simplify it. If you have experience, please post as well.

  • Are you sure you want to delete this post?
    True, it's a very complicated subject. There's so much info to track down, and so many ways to apply it to one's life and circumstances. Healthcare alone can be just as tricky. Just like you said we need to consider how inflation and current lifestyle factors into future plans, the same can be said for healthcare costs. It's easy to forget how cushy some insurance plans are through an employer, that it's easy to forget how much they actually cover. Anyone retiring should think about, their current health, and that of their partner, family members or spouse. Investing in a health savings account is definitely a good idea. Medicare and supplemental health insurance both have their pros and cons financially. I would say to give yourself an ample amount of time to shop around for coverage that better suites you.
  • Are you sure you want to delete this post?
    HollisM Wrote: I would say to give yourself an ample amount of time to shop around for coverage that better suites you.
    Good point. That's definitely the general idea here; try and prepare best you can in advance. Will require a good amount of research but it will be time well spent.