Time to figure out what you’ll spend in retirement
By Jeff Gorton
Age 85 is a bad time to go broke.
Budgeting how you spend money before retirement can often be a misleading measurement of how you’ll actually spend it during retirement.
Spending 40 hours a week at work not only earns you a paycheck, it also keeps you from spending money on more vacations, matinee screenings at the movie theater, extra trips to the mall or shopping online. You need to be exceedingly realistic in your planning, and the five years before retirement are actually the most crucial in solidifying post-employment stability.a
To prevent a rude awakening during retirement, Gorton makes certain his clients start with a written income plan (WIP). He reviews the benefits and importance of this “living document”:
• A comprehensive list of life expenses paints a clearer picture. For a 65-year-old married couple today, there is a 72 percent chance that at least one spouse will live to age 85; a 45 percent chance that one will live to age 90, and an 18 percent chance that one will reach age 95, according a recent study from the CDC National Center for Health Statistics. You may not think of listing things like pet care, yard maintenance, and regular visits to salons or spas. But if you enjoy those services now, you may want them during retirement, and you might find that you underestimated the real cost of maintaining your desired lifestyle. And, that’s not including gifts to children and grandchildren.
• The forecast of a two-legged stool. A WIP helps you appreciate the reliability of retirement income. What sources of income do you anticipate having? Traditionally, retirement funding has been viewed as a “three-legged stool,” implying a balance between Social Security, retirement plans and savings/investments. As the Baby Boom generation ages, Social Security benefits may decrease — and the age at which an individual can collect benefits may increase. Changes in employment may affect retirement plans. As a result, the third leg of the stool, savings/investments, may become even more important.
• Who is authoring your WIP? As with all written documents, you must always consider the source. What you may not realize is that a financial planner is liable to have a stake in selling you a financial product. Just like a retailer may have an incentive to move certain brands of products, many planners are incentivized to have you invest in specific financial vehicles from major institutions. What plan works best for you? Seek advice from an expert who isn’t trying to sell you something, such as an independent firm.
If you don’t have a written income plan, then you’re just hoping things will work out.
Jeff Gorton is a certified public accountant and a certified financial planner specializing in individual tax and retirement planning.
SEEK ADVICE FROM AN EXPERT ? I’m sick of people claiming to be experts. You have your nerve telling us to seek advice of an expert. If people can’t figure out how to manage their finances by the time they are 50 years old, they’re in need of an expert psychiatrist. You first make financial planning sound complicated. Then you try to frighten us saying it’s so difficult we need an expert. Then you make money off of the people whom seek your advice. What makes you or anyone else an expert ? Is your name really Bernie Nadoff ?
Just work for the gov and retire at 50 or 55 on the backs of the average taxpayer with a retirement income two to three times what social security would pay at 66 or 68. The non-gov types have put in just as much money but don’t have unions paying off the corrupt politicians who then returned the favor in spades for the new elites.
RIGHT Government employees are receiving special interest status in the form of retirement benefits. If they are called on this they claim they work hard and deserve it. To make matters worse social security benefits will soon erode leaving the private citizens holding an empty bag. Bernard Maddoff wasn’t operating the biggest ponzy scheme. GOOD POINT SUSPICIOUS !