Avoid Retirement Surprises

The latest news on retirement preparedness is not encouraging. An estimated 40% of households headed by people aged 55 through 70 are unlikely to have sufficient resources to maintain their standard of living, according to a Wall Street Journal analysis. The median 401(k) account balance for this group is just $135,000, which might be enough for a $600 per month joint life annuity for a couple aged 65 and 62.

More troubling, the debt for this cohort is on the rise. New York Federal Reserve data indicate that those aged 60 through 69 had about $2 trillion in total debt, an 11% increase since 2004. Car loan debt was up 25%, and student loan debt increased by a factor of 6!

More and more people will have to work longer to achieve the level of financial independence necessary for retirement security.

How long should you plan for?

At the same time, life expectancies are improving, raising the financial stakes still further. According to the Social Security Administration, men turning 65 this year will, on average, live to age 84.3, and women to age 86.7. Many retirements will last for 25 or 30 years. You may calculate your own life expectancy with the calculator found here.

How much will you need?

Developing a realistic retirement budget is an important exercise, one that requires an examination of values as much as resources. Some people enjoy living rather modestly during retirement. But as one retiree has said, “Life is too short to drink cheap wine.” The retirement budget needs to be understood from three perspectives.

Essential versus discretionary spending. Which expenditures could be curtailed, even eliminated, in the event of financial reversals? Food is essential; restaurant dining is not. Is there room in the budget for savings?

Structural versus peripheral expenses. Some costs are binding, not subject to modification, and failure to meet them means a structural change in retirement. If you own real property, you must pay the taxes. If you have a mortgage, you must make the payments. If you own a car, you have to pay for routine maintenance. Trips, vacations, and gifts, in contrast, are peripheral expenses.

Fixed versus inflation-prone costs. Inflation has been very mild in recent years, but this may not be a permanent condition. Most retirement expenses are vulnerable to inflation, while retirement income generally is fixed.

Understand also that long, modern retirements typically include three phases:

  • active retirement, filled with travel and pursuit of deferred dreams;
  • passive retirement, typically beginning in the mid-70s, when activities are gradually reduced; and
  • final retirement, a period often marked by failing health and a need for long-term care.

A different retirement budget applies to each of these three periods.

Put us on your team

We specialize in two areas of personal financial management:

  • Helping clients to achieve financial independence, using tax-sensitive techniques as appropriate.
  • Helping clients to maintain financial independence by providing unbiased investment advice and trusteeship.

For specifics on how we might help you, please contact us at (800) 530-5254 or visit tckansas.com/contactus, to make an appointment to meet with one of our Certified Trust and Financial Advisors, and we will be happy to assist you.  He or she will help you to inventory resources, spot financial problems and opportunities, and develop an investment plan that appropriately balances risks and rewards for your circumstances. We are at your service.