 |
| Clock is ticking down, but you aren't there quite yet |
If you are reading this blog, I assume you have some interest in retirement. Maybe not tomorrow, or even next year. Maybe it is a savings and money issue. Maybe you enjoy your job and the stimulation it gives you. Maybe your responsibilities with your family must be front and center for now. Maybe retirement scares you a bit. That just makes you normal. But, eventually you want to retire and would like some suggestion on how to prepare for the day when you are ready.
If you are already retired, I am asking a favor: read this post anyway, and then add you own hints and ideas as a comment. Your experiences qualify you to help those who have yet to make the move.
A) Make Your Financial Projections: Get a paper and pencil, spreadsheet program on your computer, or anything that will help you with the following:
What is your projected income from now until you retire. Obviously, this is a guess. Your job might disappear tomorrow. But, based on your past situation, you should be able to make an educated guess of what you expect to make from now until you do retire.
What do you expect to receive from Social Security? Avoid the "it won't be there for me" panic attack. We don't know the future, but we know the present. If Social Security undergoes revisions, then you will adjust your other projections. But, for now, use what is real today.
You get a yearly report that tells you what you can expect based on your past earnings. Do you think you will have to take your payments as early as allowed, or will you be able to wait? There are logical reasons for both courses of action that are based on your status. Add that monthly amount to your projections. There are often slight upward adjustments to your monthly check, like 2018's 2% bump, but it isn't enough to change any of your planning.
What is the current status of your retirement savings and investments? You can't predict what the market will do. You can project how much you plan on saving and investing in the years ahead. Using a conservative growth projection, what should you have when you are ready to retire? What do you need to have available when you retire?
Here's a biggie: what about health care costs? None of us knows what the future holds in this area. Personally, the only thing I expect are prices for coverage, medicines, and services will go steadily up. Plan on at least a 10% increase every year until you are eligible for Medicare (or its successor). If you are lucky enough to have good coverage through your workplace, you are lucky. That removes a large worry from your plate, at least for now.
Be aware, that even with Medicare after you turn 65, expect to spend at least $240,000 on medical expenses during the rest of your lifetime.
OK, now with those figures available to you, can you live on that for 30 years? People in good health today who are in their 40s or 50's can expect to live into their late 80s or mid 90s. If you retire sometime around 65, you will have to take care of yourself for another 30 years. Can you?
B) Make Your Lifestyle projections: Your financial situation will determine the overall structure of the life you will lead in retirement. Lifestyle issues will determine the quality: whether it is enjoyable and satisfying. Are you ready?
Where will you live? Many folks want to escape weather they don't like and use retirement as the motivation to move somewhere more to their liking. Or, their family lives somewhere else in the country and moving closer would make them happier.
Others like the roots they have established where they are, have family and friends nearby, and don't want to go anywhere. Moving to a retirement community on the other side of the country would never cross their mind.
Do you envision yourself in an "active adult" community, an age-restricted setup, an urban or rural environment, or selling everything and becoming a nomad in an RV?
What about the complications that arise when one or both spouses are with each other 24/7? Trust me, this is a a major adjustment for both partners. No matter how much Dr. Phil you have watched, how many books on relationship building you've checked out of the library, and how much you love your partner, being together all the time is tough without some planning.
Do you have something besides work that you love to do? If work is your vocation and avocation what will you do when you don't have that anymore? Do you have any interests, passions, or hobbies you'd love to explore? It is best to figure that out before you walk in the door of your house, retired, with no idea what to do next.
I've made the point many times in multiple posts that retirement is a huge adjustment for anyone. I don't care how well prepared you think you are, there are things you have not forseen that will happen. Such uncertainty shouldn't freeze you in place. Life is all about change. There is no way to cover all your bases ahead of time.
So, what to do? Plan, plan, plan. Then plan some more. Consider everything you know and things you know you don't know. Then, when the time is right for you, just do it. You will learn to adjust. You will struggle, grow, panic, and thrive. That is life whether you are retired or not.
Hello, Bob, have you seen this? It's hard!
ReplyDeletehttps://retirement.theamericancollege.edu/retirement-101/retirement-income-literacy-quiz
I took the quiz and failed, don't know what to do, been retired for eight years. ronaldj.
DeleteYes, that quiz is tough but I wouldn't feel too bad if you score low. The organization that provides it is designed to prompt people to become financial service professionals, so the questions are more in depth than most of us need to know. I found the first 25 questions to be worthwhile but after that I'd expect my professional advisor to know those answers and advise me correctly.
DeleteThat said, basic financial literacy is lacking in our society. I'd say you should be able to answer the first 20 questions without a struggle if you have a good base of knowledge. Thanks for the link, Lynn.
Just curious...where did you find the $240,000 spent in medical care after retirement? I knew even with medicare and a good medigap policy, you'd spend some, but that seems high. I'm not including going into a nursing home or long term rehab because I know that runs out after 100 days and you would spend BIG. Is this what you mean?
ReplyDeleteI believe this info came from AARP and was originally from Fidelity, who tracked it for a decade. But this is the amount for a couple, not a single person.
DeleteThat $240,000 figure is for a couple and does not include long term care. Medicare premiums for a couple for 20 years will be approximately $70,000. Medigap coverage and Part D coverage can easily add $75-90,000 more over the same period. The rest is for things like hearing aids (up to $10,000 each), eyeglasses, and all the copays for medicines (even with Part D) and over the counter health supplies. It adds up quickly even with all the benefit of Medicare and its add-ons.
DeleteA Medicare Advantage program could cut that cost somewhat depending upon what may be included in the monthly premium.
Great post, as usual! About 18 months from now I hope to retire, if nothing gets in the way. I've joined a club, ramped up my hobbies, started a blog and saved like crazy in the past year to pad up the retirement funds. Still have to iron out some ideas with my husband, who is retired and just now getting the idea I won't work forever. He actually brought up the idea of moving yesterday! It's an adventure for sure.
ReplyDeleteYes, it is an adventure and holds the potential to be the most satisfying one of your life because you have the freedom to design it the way you want. Many of the restraints that hold us back earlier in life are gone.
DeleteI almost almost 58. I am seriously considering working until I am 65 just because of the healthcare issue. I have great insurance where I work. I have kids in two different states, 2000 miles apart. I am more inclined to stay near the three kids who live near me now, because I have lived near where my daughter lives (Salt Lake City, Utah) and I am not really fond of cold weather, although I do like that area also. Since I live in a sunny, humid deep south state, the only state I could get further south would be Florida...lol. I am not sure if I would like being further away from these three kids by moving to Florida. I could just move further south in this state and go to our beach (or have quicker access to Florida beaches, like in under an hour).......I just do not know. In a few short years, my retirement income will be the same as my take home income that I currently have. The BIG elephant in the room is that memory issues are very pervasive in my mom's family, and I am really more concerned about that than anything. Actually, I, and all my cousins, are ignoring it. We all just really do not want to think about it because there is no magic shot to prevent "It" with ALL six siblings having it.......sigh. The one who developed "It" the earliest was the baby of the family, and she was about 67. The others developed "It" ranging in from age 76 to 82. The one who developed it the earlies, quit work at age 43, and traveled the world for years. All of the cousins joke that we are afraid to quit work since she developed "It" the earliest. I am sure that probably have zero to do with "It" developing. Our family calls this health issue "It"...sorta like It on the Adam's Family tv series...big, shaggy, and very ugly.....
ReplyDelete"earliest" and yes, I wrote the word, "near" a lot. We are paranoid a bit in my family, about repeating things, because of ya know..."It"...lol
ReplyDeleteContinuing to work because of health insurance was never an issue, until the last decade or two. Our health care system is so screwed up that deciding to stay employed just for that reason is quite valid.
DeleteThe worry about dementia, Alzheimer's or simple age-related memory loss is a very common concern because there is really nothing we can do about "it." With a family history like yours, I guess the only step anyone can really take is staying close enough to some family members who can help with daily living issues when the time comes.
My two pieces of advice would be to make sure you search out information on the lifestyle side of retirement, as you have noted, Bob. If you do the Google search, or browse the available books and resources, the vast majority will relate to finances. Obviously these are critical, but you have to be ready to live an interesting and worthwhile life without work as well.
ReplyDeleteOn the financial side, what I have been telling people is that when you do your projections, make sure to look at net income. It can be a bit scary comparing gross working income to gross retirement income. But if you focus on what actually ends up in your bank account you will likely be pleasantly surprised. When I was working, my deductions from each paycheque included income tax, employment insurance, government pension, work pension. In retirement, the only deduction from my pension cheque is income tax, and that is at a considerably lower rate. As a result, our household retirement take-home is almost the same as when I was working.
Of course we also have the benefit of not having to find $250,000 for health care.
I remember that you live in Canada, and the spelling of paycheque sealed the deal!
DeleteA quarter of a million dollars is probably a decent incentive for some to move north. National health care seems so logical and fair almost everywhere but here.
The thing that always shocks folks is the $250,000 cost (or about $130,000 if single) is so huge and doesn't have anything to do with nursing home care is that becomes required. At an average of $8,000 a month for that care, you have to tack on several hundred thousand dollars more for end of life care, unless you live in a state that isn't gutting Medicaid.
It is enough to age anyone before their time.
I had no idea about this high cost. I never considered the monthly cost of Medicare and the supplemental or in case of an advantage program, the copays, deductibles etc. probably because these are piecemeal rather than all at once. But it does add up...seem ridiculous that such a wealthy country has such high healthcare costs for its citizens and the poor really suffer. Do you know our infant mortality rate is higher than other wealthy democratic countries too? It is due to poverty and poor or costly care.
DeleteHas anyone stopped and realized that perhaps America is NOT the wealthy country we are kept being told it is? Mostly everyone has debt. That is how Americans and America exists: on credit. The increasing homelessness should once and for all proclaim America is NOT a wealthy country.
DeleteIt seems rather obvious, at least to me, that we are living with an image that hasn't been true for quite some time.
DeleteVery good advice, Bob. I remember when I was planning for retirement, and trying to figure out if we would be fine financially and otherwise, I sometimes became overwhelmed thinking about future factors — what would the market do, how many years should I plan for, how would our future lifestyle differ from our current lifestyle, etc. Your advice to plan based on what is currently known is good. Ultimately, that is what I ended up doing, but if I had read this during my planning phase it would have saved some fretting.
ReplyDeleteJude
I have mentioned before that even with all my projections and budgeting, about 6 months after retiring I realized I hadn't planned for health care cost increases. That was a serious oversight that created a few more sleepless nights until I figured out a solution (cutting expenses from some discretionary categories)
DeleteThe advice is good but I think trying to be 100% prepared for retirement is like trying to be 100% prepared for having children. It's not going too be exactly what you thought it would be but when it's time, it's time, and you'll make it work. You'll also know in your heart when it's time.
ReplyDeleteRetirement is a walk on the wild side for everyone. Anything can happen and you learn to adjust.
DeleteVery comprehensive look at what is necessary.
ReplyDeleteI would add two things:
Call the different companies you worked for and make sure they did not have a retirement plan that you were vested into. My friend was surprised that a five year contract at a company, that she worked for in her 20's, will pay (at 65) $150 a month for the rest of her life! Hey, plenty for all of her prescriptions right now.
Are you a couple?
What would it look like if something happened to your partner?
Very soon,taking the smaller working SS early and then moving to the larger spousal at 67 can no longer be done. Early start will reflect on you widow or widower allowance. Is there enough SS/ savings for the person who did not work for hire pay or does not have a pension?
Taking this all in we chose to put off our early retirement for two years (62 to 64) and saved like crazy.
Every year I calculate our retirement from the viewpoint of yours, mine and ours. A bit more paper, but it is worth the sigh of relief in the end. Ahhh- I love being the master of my own time!
Thanks, Janette...good points. I am sure the scenario you mention about the orphan retirement plan happens more often than we might think. It is like someone who searches various web sites for money some government agency is holding in their name, and finds thousands of dollars just waiting to be claimed.
Delete"You will struggle, grow, panic, and thrive. That is life whether you are retired or not." THIS is why your retirement is so satisfying, Bob! Loved it.
ReplyDeleteI am quoting what I said on an earlier post because it fits here, too: "Life is a journey on a crooked road with lots of fallen trees in our path. Those of us who can climb over or walk around those trees come out the other side stronger and more convinced of our ability to handle what the path of life has in store for us."
DeletePerfect. Reminds me of my guiding quote for this year. "For what has been, thanks. For what will be, yes."
DeleteI enjoy your site. I am not retired yet, but would like to be sooner rather than later.
ReplyDeleteThe $230K of health costs is huge and shouldn't be ignored, but I also think like with everything else, it also needs to be kept in perspective.
That amount is over 30 years and is for a couple. Average social security for a couple is about $2,212 per month. That $230K figures out to about $700 per month or around a third of the average social security check. Granted - very high - but not insurmountable especially if given some time to prepare for retirement (i.e save more money, paid off home) or have another outside source of income such as a pension, rental property, etc.
Also, for a large number of retirees, the bulk of health care costs come at the end of retirement when other expenses like travel have dropped off.
I'm not making light of it by any sense - the number is big. But I think it can be overcome without necessarily having to resort to socialized care. Those cradle to grave programs around the world are nice, but they also come with a cost. If tax rates go from where they are now to 50% or higher, setting aside funds for retirement will be that much harder.
Health care needs to be looked at. A country like the US needs to take care of its most vulnerable. I just don't know if we need to go the socialized medicine route. Surely there must be an answer somewhere between where we are now and a single payer system. And people that read sites like yours are among the best to help put forth some ideas. Your readers are the very people that are out there looking for the best ways and advice on how to tackle the big issues everyone faces like the costs surrounding retirement.
You are correct: the high cost for retirement health coverage works out to a reasonable monthly fee, unless long term care/nursing home expenses are added to the total. Then, the number can be staggering.
DeleteSomething as common sense as allowing for negotiation of drug prices by Medicare would reduce prices dramatically. It is hard to see any logical reason why this is prohibited except that too many politicians are owned by lobbyists for big Pharma.
Cutting Medicaid coverage is unethical and immoral. Balancing tax cuts and a bigger military on the backs of the poor and vulnerable makes my skin crawl.
I agree. Long term health care is off the charts expensive. And it is sad that you have to spend yourself into poverty prior to getting much in the way of assistance. A base level of care is necessary for all ages of citizens. Of course trying to figure out what is a base level is a difficult climb but not insurmountable.
DeleteAnd something must be done about people with major health problems such as people born with huge problems, etc. Perhaps some sort of fund outside of insurance that is funded by the public. It is difficult to ask insurance companies to take those on. It is sort of like expecting to comprehensive auto insurance right after the accident.
I consider myself right of center on the political spectrum, but I would agree there is plenty of bloat in the military. I would argue that a lot of the cost is borne more by the middle class more than the poor, but in the end it makes no difference. The simple fact is that there is a better use for the money and reasonable people can agree on that.
I just don't know where to start to make the changes - other than in my own life where the less than perfect solution is to try to save enough to take care of my wife and me.
I really do enjoy your writing. Keep it up!
Thanks for your thoughts and compliment
DeleteI believe one of the obvious roles of any functioning government is to provide help, at a basic level, with medical, food, and housing for those who cannot. Each human life is just as valuable as any other, regardless of bank balance, skin color, or being born to the "right" set of parents.
Having the biggest military the world has ever known while refusing to protect those who are hurting, struggling, and sick shows me a seriously out of whack set of priorities.
Just to inform you regarding retiree health insurance: My wife and I have our health insurance through United Health Care/AARP. We also have Plan D with them as well.
ReplyDeleteOur Plan D went up to $90/month EACH =$180 for two.
Our daughter in law owns her own pharmacy. She said for my 3 prescription meds and my wife’s 2 the TOTAL cost to her is $14. You read that right $14.00 (for a 90 day
Supply) She said I should cancel my Part D and just pay her what her cost is. She
could charge us $45per if we were to go through our providers.
We had to jump through some hurdles from UHC but they have relented. Our DIL said if we needed costlier prescriptions in an emergency we would work it out together and if needed a long term basis we would be able to rejoin UHC in fall enrollment.
Anyone can work a similar arrangement with any pharmacy, not because she owns one. Even when she worked for a national chain they were able to assist seniors who asked.
Obviously the is a wide price spread among different types of plans. I pay $20 a month for Part D coverage through Humana. Even that is not needed because I never come close to the yearly deductible. So, I keep it in case I suddenly need an expensive drug for a new problem.
DeleteHaving a daughter-in-law well connected certainly helps, though you overall point is true: sometimes the discounted cash price for a drug is less than what it would cost through insurance - silly but true.