Some Keys to Retirement

Keys to Retirement

Are you thinking of your retirement?  If you are like me, or even younger, you may be pondering how you will retire and under what circumstances.  If you read my blogs on a regular basis, you are well aware I am a firm believer of saving early and often to ensure you will have enough when it is time to retire.  To be honest it never is too early to consider your retirement.  When I first started working for the government one of the best things I did was attend a retirement seminar where I was working.  Granted it was aimed at people that were going to retire within five years but even the instructor said that was too late for someone to get the proper information.   First if your employer offers a retirement seminar I highly recommend everyone attends it to get some valuable information that really is aimed at younger workers who are not near retirement.  As someone who will be assisting people gage how much of their income they will need to replace here are some of the key expenses retiree’s encounter.

The single largest expense is someone’s housing and housing related expenses.  Hopefully, by the time you retire you no longer have a mortgage but in the event you do I recommend trying to pay it off before you actually retire.  A mortgage is an enormous expense for everyone, but it could become a burden when you no longer have an active income.  It is estimated that as much as 40% of your income may go to pay for housing and related expenses.  And considering that even if you do not have a monthly mortgage you will still have insurance, property taxes, and utilities to pay.  So if you can eliminate the cost of a monthly mortgage you will be better off when you retire.

Health care is an expense that when you are early on in your retirement years you will pay less than later in life.  Typically someone in their 50’s can expect to pay about ten percent of their income to medical expenses.  This will increase to 20% or more when you reach your 80’s and depending on your situation could go much higher.  If you are in your 40’s or earlier, I do not recommend long-term care insurance as it is very costly over the life of the policy.  Find out what the premium would be and invest that amount on a monthly basis to an indexed fund of some kind for the rest of your life.  By doing this, you will self-insure yourself for long-term care needs.  If you are older, it may be more economical to purchase a long-term care policy from a reputable insurance company rather than try to self-insure.  I know there are very few insurance companies that still sell this type of insurance that were selling it 15 years ago.  When you purchase a long-term care policy, it is critical to do your homework on the company issuing the policy.

Taxes never seem to go away but in your retirement one tax that will disappear if you no longer work is the FICA or Social Security Payroll Tax.  Depending on other factors such as how much Social Security you receive, if you have interest income, investment income, a pension, or are making withdrawals from an IRA or 401(k) you may have some tax liabilities.  Not all states tax retirement accounts the same so check with a tax professional in your state for more information.

Now you are retired and no longer will be commuting to and from work.  If you are married, your spouse may no longer be working either.  If that is the case, consider selling one of your cars as you no longer have a need to be a two car house.  It will save you on maintenance, insurance, possible taxes, and gas.  Why pay for two vehicles when you only have a need for one.  In some larger cities where public transportation is good, safe, and reliable you may not even need the one car.

Now the last area is one that is very dependent on the people and what their desires are as far as travel goes.  Some Baby Boomers estimate they will spend upwards of $8,000 a year on as many as four trips.  While there is nothing wrong with that and after all you have worked hard your whole life, so it is time to enjoy the fruits of your labor.  But consider scaling back from five-star hotels to nicer chains.  And take advantage of going to see your children and grandchildren where you can stay with them and avoid the cost of a hotel altogether.  This expense is the only one that is 100% discretionary so if you spend a lot or a little it is up to you.

If you need more information on this subject or have any questions, please feel free to contact me.

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