Planning for income in retirement is becoming a greater and greater challenge, both for clients and planners. Here are some of the main considerations in retirement planning:
- 1. Longevity
It is not inconceivable today that a person could live as many years in retirement as they did working. With medical advances continuing to stun the world, it is now necessary to consider the fact that without proper planning, you could in fact outlive your income!
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2. Inflation
While in the current economy, inflation has generally been low, consider this. If you graduated from high school in 1950, inflation has averaged 3.86% ever since according to the US Department of Labor, Bureau of Labor Statistics (all urban consumers - all items). What does that mean to you? Well, if you need $70,000 per year to live on in today’s dollars, at 3.86% inflation - the rate since you left high school, in 20 years you will need $149,302 of income to maintain your lifestyle. Do you have a plan or a strategy to accomplish that?
- 3. Taxes
The conventional wisdom has always been that it was proper to defer income taxes until retirement when we would be in a lower tax bracket. In fact, historically, we are currently in one of the lowest income tax environments in history. If you have a large amount of money accumulated in your tax-qualified and tax-deferred retirement plans, such as traditional 401(k) plans, or IRAs, you will likely pay more than 4.5 to 5 times the taxes you saved by making the contributions during your retirement years. And that assumes taxes do not go up! What are your plans to address this?
- 4. Health Care
While there are many contributing factors you may want to consider regarding your retirement income, the last and perhaps the greatest threat to your retirement security is the cost of health care. In addition to regular health care, there is also the crisis of needing long-term care. That is care you would need if you could not bathe, dress, transfer from a bed to a chair, use the bathroom, or eat without human assistance. Not planning for this type of health care crisis - and then needing long-term care could derail the best financial plan in every other area.
