Many people spend years wondering whether they’ve saved enough for retirement or if they’ll outlive their money. Determining whether you’re financially ready for retirement doesn’t have to be a guessing game. By evaluating a few key factors and getting professional help you can create a retirement plan and make informed decisions about your future.
First, create a realistic monthly budget that includes essentials such as housing, utilities, food, transportation, insurance, healthcare, entertainment and vacations. Knowing what you expect to spend provides the foundation for every other retirement calculation. (some expenses decrease and some increase).
Retirement income may include government benefits, pensions, savings, investment income, rental properties, or part-time employment. Compare your anticipated monthly income with your projected expenses. If your income exceeds your expenses, you’re in a much stronger position to retire comfortably. If there is a gap, you may need to delay retirement, reduce spending expectations, or increase savings before retiring.
Another important consideration is how long your savings need to last. Thanks to advances in healthcare, many retirees will spend 25 to 30 years or more in retirement. Rather than planning for an average life expectancy, calculating for a longer retirement to provide a margin of safety. Long-term care needs can severely impact your portfolio as well. National average cost for nursing home care is $7,800-$8,500 per month. Very few have this possibility covered because “I’m never going into a nursing home”.
Healthcare is often one of the largest retirement expenses. Even if you have insurance or government healthcare coverage, there may still be out-of-pocket costs for prescriptions, dental care, vision care, long-term care, or specialized treatments. Building a financial cushion for healthcare expenses can help protect your retirement savings from unexpected medical bills. This is one of the main concerns for people who retire before qualifying for Medicare. Those additional healthcare premiums need to be estimated and added to your expected living expenses prior to age 65.
Inflation prices for groceries, utilities, and everyday necessities generally increase over time. A retirement income that feels comfortable today will lose purchasing power over the next two or three decades. Your retirement strategy should include investments or income sources that have the potential to keep pace with inflation (usually stock market-type investments) as well as predictable guaranteed lifetime income sources, (pensions, guaranteed lifetime streams from annuities, social security, etc…)
While reducing risk in retirement is sensible, becoming too conservative too early can limit your portfolio’s ability to grow. Maintaining a diversified investment mix that balances stability with long-term growth can help your savings continue working for you throughout retirement. With good professional management on these risk investments, you can usually reduce market volatility and potentially increase returns.
Paying down debt before retirement improves cash flow and reduces financial pressure. This will need to be done strategically if you use too much in retirement dollars to pay down all your debt you could be limiting the amount of income from these investments.
Ask yourself how your finances would hold up if investment markets declined, inflation remained elevated, or unexpected expenses arose. Having at least six months’ expenses in a high-yield money market for emergencies is recommended.
The right retirement plan with the right retirement advisor can help you create this. If you would like to have confidential conversation about this call us at 810-232-2300.
Investment Advisory Services offered through Redhawk Wealth Advisors, Inc., an SEC Registered Investment Advisor. SEC Registration does not imply any level of skill or understanding. Insurance and annuity products sold separately through Alliance Financial Group, Inc. Alliance Financial Group and Redhawk Wealth Advisors are unaffiliated and separate legal entities.
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