HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?
This will become a monthly series submitted by local Financial Advisor Kurt Schlesinger…
Many people underestimate lifestyle costs, medical expenses, and inflation.
What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70 percent of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.
You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.
That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.
Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2 percent a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5 percent from 2006.2
Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.
Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.
Spending habits. Do you only spend 70 percent of your salary? Probably not. If you’re like many Americans, you probably spend 90 or 95 percent of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more.”
Social Security (or lack thereof). In 2005, SSI represented 39 percent of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29 percent of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.
So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.
Kurt Schlesinger is a Financial Advisor with The Investment Center, with more than 19 years of experience in the investment and wealth management business. He holds his general securities, life and health licenses and is a current member of the Financial Planning Association. He has worked with larger firms such as Smith Barney and UBS and is happy to report that he has found his true home as an independent financial advisor with The Investment Center. Kurt lives in Pawling with his wife, June, and they have two grown children. His hobbies include skiing, golf, and playing guitar. Kurt is committed to improving his community through various charitable organizations. He may be reached at firstname.lastname@example.org or 845-855-5008. All Securities offered through The Investment Center Inc., member FINRA/SIPC
These are the views of Peter Montoya Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
Citations. 1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin