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Can I afford to live to be 100? Will the money I have saved for retirement be enough?
That depends. Enough for what? Enough for basic needs like a place to live, food to eat, utilities? To put a number on “enough,” you need to imagine how you want to live. For most retirees today, that’s vastly different than their parents’ retirement years.
With improvements in healthcare, diet, and exercise habits, Americans are generally living longer lives and enjoying more active and vibrant retirements. The average life expectancy in the U.S. is 79 years of age.
The chart below shows that when you’re 65, your chances of living into your mid 80s are better than when you were younger.
If you started working and saving for retirement at 20, took early retirement at 50 and live until 79 (the national average), you could easily take as many years to spend your nest egg as you did to build it. As medical technology increases along with life expectancy, the chance exists that you or your spouse will live past the age of 80.The longer you live, the greater your risk of outliving your money.
Planning how to make your money last as long as you do can be complex. For example, you can begin taking withdrawals from your IRA at age 59½, but should you? You must take minimum IRA distributions beginning at age 70½, but what if that pushes you into a higher tax bracket? Deciding which assets to tap when, and with what tax and investment consequences, can be overwhelming. You may need to reallocate or even liquidate investments to provide cash flow for daily living expenses, avoid as much in taxes as possible and account for potential market downswings. Strategies for repositioning your portfolio and liquidating assets can take years in order to avoid high tax bills.
Retirement planning is a tricky process, one that requires careful planning and patience. But even if you have a retirement plan with a clear set of financial and lifestyle goals, it’s important to be aware of several common missteps that many fall victim to.
1 - Underestimating the costs of health care
As health care costs continue to rise dramatically, employers are shifting more weight of the costs onto their employees. More companies are beginning to drop retired workers from their health plans, and millions of Americans have no form of coverage at all.
Consequently, a common mistake made in retirement is a lack of preparation for the financial impact of health expenditures. One of the most overlooked and most expensive costs is long-term health care, which can be devastating to your financial goals. Long-term care insurance can provide some safeguards, and purchasing it early on can help lower its costs.
2 - Misjudging how long you or your spouse will live
Many underestimate the amount of assets that could be needed to last throughout their lifetimes. As medical technology improves and life expectancy increases, the odds are good that you or your spouse will live past age 90. So it’s vital that you are prepared to live longer.
3 - Presuming you’ll work a long time
After working long, hard hours to get ahead, most baby boomers believe that they’ll be working long into retirement. But that assumption can be one of the biggest retirement mistakes you make.
Census Bureau statistics indicate the average age of retirement in America is now 62. According to the 2015 Employee Benefit Research Institute Retirement Confidence Survey, 60 percent of retirees who had to leave the workforce earlier than planned did so because of poor health or disability, 27 percent left because of layoffs or corporate restructuring, and 22 percent left to care for a spouse or family member. Just 17 percent of retirees cited leaving to do something else. Even if you want to work as long as you can, it may not always be possible, so it’s vital that you plan and save for such a scenario.
Working with our team and having the proper planning in place are essential keys to a successful retirement. It’s also important to keep an eye on health care costs and stay informed on issues that will affect your retirement. By focusing on the long term and being aware of common pitfalls, you can be prepared to make your retirement the best years of your life.