No matter your age, retirement is a big financial issue in your life. It's something you should be thinking about and planning for whether you're 22 and just out of college or 62 and a few years away from achieving it. A key part of this is asking yourself the right questions about retirement (then hopefully answering them correctly). Here's part one of a USA Today article on 10 things you should ask yourself about retirement:
When should I retire?
The answer varies, depending on how much you like your job, how long you expect to live and the size of your savings. But if you're worried about outliving your money, working a few more years can significantly improve your standard of living in retirement.
What will my expenses be in retirement?
Short answer: more than you think. You won't spend as much on your wardrobe, and your commuting costs will drop. But the money you save on dry cleaning and gas probably will be eaten up by medical expenses, says Gregory Merlino, president of Ameriway Financial Services in Voorhees, N.J. "Those expenses have increased at a rate far greater than the rate of inflation," he says.
A general rule is that you'll need to replace 70% of your pre-retirement income to enjoy the same standard of living when you retire. But the rising cost of health care has thrown that axiom out the window, benefits experts say. Many retirees will need to replace 100% of their income, or more, to maintain their standard of living, Hewitt's Lucas says.
My thoughts:
1. For many, the answer to "When should I retire?" is "never." Instead, they will simply downshift (work less hours) or change careers (at lower pay) to do something they really love. I think this will be more and more common as people live longer and the amount they need to take them through death increases.
2. "Workers...might end up spending more than 40% of retirement income on medical expenses." Yikes! There seems to be no end in sight for the increases in health care costs. Maybe that second career I mentioned above should be in medicine. ;-)
FMF,
Interesting article. This is certainly a topic of conversation with the "Empty Nester" crowd. One of the things that I have noticed in my practice is that the baby boomers define retirement completely different than the previous generation.
Every single person that I have talked to described a more expensive lifestyle than they one they currently have while working. This was largely due to travel, and the desire to have two homes in retirement.
I suppose most won't achieve this goal because of poor financial planning. But many still can. Once a couple hits the empty nester stage, their ability to save sky rockets.
I have found that only about 3% have any idea how much cash it will take to drive the lifestyle they want. I can tell you from personal experience. A million dollars isn't what it used to be.
They moral to the story? Find your magic number, (how much cash will it take to drive the lifestyle you are looking for?), and save cash like crazy!
David Porter
Posted by: David Porter | October 24, 2005 at 01:07 PM