Are you prepared for Retirement?
Years ago, it was not uncommon to estimate that at retirement you might need 75% to 80% of your current expenses to survive and enjoy your retirement years. However, this number can be misleading for a few reasons.
- There are many differences in households and their income needs.
- People are living longer today than our parents' generations.
- Health care costs have skyrocketed and could play a much higher part of future expenses than previously expected.
It's important to think about your own expected longevity so that you can properly and safely estimate how long your income will need to continue in retirement. For example, for those fortunate enough to have good health, traveling more frequently may be a desire and needs to be planned for accordingly.
Questions to Ask Yourself
- What are your current spending needs to pay your bills and have some fun?
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How will your spending needs change overtime?
- Will your mortgage be paid off?
- Will you need the insurance coverages you may own at retirement?
- Will your healthcare costs go up or down?
- Maybe if you're no longer working, your dry-cleaning bills will go down.
Every household is different and unique. Regardless of your personal situation it’s important to sit down and review your current expenses and see what will apply when you are retired. We generally calculate everything in today's dollars to make it easier to compare but know that inflation will make those actual numbers higher at retirement.
Let's say you determine that your retirement expenses will be ten percent less than your current expenses. That’s a factor of 0.9 (or 90% of current expenses).
After you have a good handle on what your expenses may look like in the future, it’s important to look at all your income sources to determine if you have adequate income to support those expenses. Income may include:
- Pensions, social security, retirement earnings from employment while retired
- Income from investments or any other source of income that applies to you
Hopefully when you review your income and then deduct your expected expenses, you’re left with a positive cash flow. If not- then it’s time to look deeper:
- Run scenarios on how long your money should last
- What expenses could be further reduced
You will want to be sure you are able to meet your retirement expenses and hopefully enjoy life and have some fun along the way.
Oxford Planning Group works with our clients to help determine these numbers. It’s important to use conservative numbers in estimating portfolio returns, taxes and other estimates so that future predictions and estimates are based on realistic values. As always, we are here to help. We are "Focused on your Tomorrows".
