Quality of Life
Happily ever after is only the beginning.
Retirement isn’t what it used to be. It’s longer. It’s more active. And it’s harder to predict.
Many of today’s retirees can expect to spend 30 years or more enjoying the fruits of their labor. That’s why it’s increasingly important not simply to plan for retirement, but to plan for longevity in retirement – all of the years it might last, all of the ways your life will change and all of the events you can't foresee.
In addition to the financial implications – how best to save and how much – retirement has life implications as well:
- As you get older, changes in your health could mean less independence.
- Shifts in your abilities – and mobility – could impact access to things you enjoy.
- Your social circle likely will shrink.
Mind the Gap: Prioritizing retirement needs, wants and wishes
At times, a retiree's reliable income is not enough to cover essential expenses, be it due to lower reliable income, unexpected economic factors or rising costs of living. This leaves a gap, the difference between income and vital expenses. Retirement assets first should be allocated to fill this gap, before being spent on secondary wants and wishes.
- Reliable Income Pays for Needs
- Needs
- Income Gap
- Wants
- Wishes
- Retirement assests Support wants and wishes + fill potential gap in income for needs
Key decision dates and important milestones
Ages 50 to 59 are crucial longevity planning years – retirement is more than a faraway notion, but far enough away that you can adapt.
50 Eligible for IRA and 401(k) catch-up contributions
55 Eligible for penalty-free, separation-from-service withdrawals from 401(k)s
59½ Eligible to begin penalty-free withdrawals from IRAs and 401(k)s
62 First eligible for Social Security with reduced benefits
65 First eligible for Medicare
66 Full retirement age (FRA) for Social Security if born between 1943 and 1954 (FRA increases two months for every year from 1955 to 1959)
67 Full retirement age for Social Security if born 1960 or later
70 Maximum Social Security benefit (you must begin taking benefits)
72 Required minimum distributions begin the year after you hit this age
Key retirement questions
-
Whether you’re bound for a dream home or planning to stay put, housing likely will be your biggest expense in retirement. While aging in the comfort of your own home would be ideal, modifications to the home – or your plan – could be necessary as mobility and transportation challenges arise.
Points to consider:
- Do you want to stay in your home? Will it need to be modified?
- What housing options are available to you, and what will they cost?
- Would you want to downsize? Relocate to a pedestrian friendly neighborhood?
-
It may come as a surprise, but transportation is the second largest expense for individuals older than 65 and accounts for about 15% of their annual expenditures, according to the Bureau of Labor Statistics. That’s why we make sure to account for it as part of your long-term financial plan.
Points to consider:
- How will you get to your favorite places in retirement?
- Who will assist you if you can’t drive yourself somewhere?
- What transportation options are available in your area?
-
Your health and your finances are intertwined in complex ways. Most expect Medicare to pay for their healthcare expenses in retirement. But, in reality, Medicare pays only 60% of healthcare costs* – you still will have premiums, copays and deductibles. As you age, healthcare costs can add up.
Points to consider:
- Do you have an existing condition?
- What will treatment cost over the long term?
- Do you know what costs Medicare will cover?
- How will you pay for what Medicare doesn’t?
- Have you considered Medigap?
*Employee Benefit Research Institute, 2015
-
As we all live longer, chances are you may, at some point, provide care for a loved one or receive care yourself. Becoming a caregiver can be not only stressful, but also can have financial consequences if it requires taking time away from work. And long-term care is not covered by Medicare.
- Do you understand the full impact of being a caregiver?
- How will you get the care you need as you age?
- Should you consider long-term care insurance?
-
Giving yourself every opportunity to save enough for a long, fulfilling life requires careful, detailed longevity planning – strategies for saving, investing and taking withdrawals. Making the right Social Security claiming decisions is vital to optimizing your retirement income strategy.
Points to consider:
- When are you planning to retire?
- What sources of income will you have in retirement?
- How much income you will need in retirement?
Where your retirement money goes
Wealth alone cannot buy a quality retirement any more than it can buy happiness – but having a solid financial foundation can make those years more enjoyable. As you consider a long, happy retirement, give some thought to the most expensive aspects – housing, transportation, healthcare and food – the effect of inflation and how to budget for it all. Entertainment should be included, too, since social activities enhance your physical and emotional well-being. Keep in mind that these percentages will vary as life changes, so it’s a good idea to account for the biggest line items as you plan for the future.
Source: Consumer Expenditure Survey (average annual expenditures for individuals 65+), U.S. Bureau of Labor Statistics, August 2016
- 19.2% Other Combined, the categories here rival transportation, but not a single one counts for more than 5.3%. Line Items: Education, Clothing, Gifts, Insurance, Taxes, Personal care products
- 5.5% Entertainment Line Items: Pets, Hobbies, Fees and admissions
- 12.3% Food Fortunately, this major expense is one that you have a lot of control over. Line Items: Basic groceries, Specialty items, Dining out, Beverages
- 12.9% Healthcare The average couple age 65 to 92 pays $400,000 out of pocket. Line Items: Premiums, Prescriptions, Medical supplies
- 34.8% Housing Housing and related costs have a major impact on the retirement budget as well as your comfort, particularly if you want to live independently at home. Line Items: Mortgage, Taxes, Insurance, Maintenance, Utilities, Age-in-place renovations
- 15.3% Transportation Surprised? Transportation is critical to your freedom, your independence and your ability to meaningfully engage with others. Line Items: Car payments, Fuel, Insurance, Maintenance, Public transportation, Travel expenses
Planning for a long, happy life
At Carlyon – Stoops Family Financial Planning, we specialize in planning for a full financial life. We take a holistic approach to retirement planning – one that goes beyond investment account strategies to consider all of your needs, your wants and your wishes. Some of it will be exciting – dream homes, travel, time for family and hobbies. Some of it will be uncomfortable – the possibility of a health issue or need for long-term care. All of it will be on the table – and part of your comprehensive longevity plan.
