Whar Are the Top 5 Most Important Financial Considerations When Going Into Retirement?

Q: What are the most important financial considerations we should be concerned about going into retirement?
A: While there are a number of issues you should consider, the top five include:
1. How Long Savings and Investments Need to Last. The average 65-year-old man has a 50% probability to live to the age of 85, while the average 65-year-old-woman will likely live to the age 88. That means over 20 years in retirement – or more than half the length of an average career.
2. What Percent of Retirement Assets Can be Withdrawn Each Year. At a 5% withdrawal rate a balanced portfolio of stocks and bonds may last for 20 years, adjusted for inflation. That means only $ 50,000 could be withdrawn from a portfolio worth $ 1,000,000, today. An unbalanced portfolio or too high a distribution rate could easily derail a healthy retirement nest egg.
3. How Much Will Your Income Need to Increase Over Your Retirement Years. Key sources of income for many retirees include social security, employer pensions, personal investments and annuities. Plan to double your income in 25 years. For example, the average new vehicle cost $ 28,000 in 2004. In 2029, it is expected to cost $ 58,600 – more than today’s median household income!
4. How Should Assets be Invested in Retirement. Many investors approaching retirement eliminate their stock market exposure, believing exposure to the stock market is too risky during retirement. The reality is having no stock market exposure is too risky during retirement. The risk of inflation eroding the value of a retirement nest egg requires many retirees to maintain exposure to the stock market – albeit at a more modest allocation than in pre-retirement.
5. Healthcare Expenses in Retirement. Today’s 65-year-old-couple may need $ 175,000 for medical expenses in retirement. One out of every two retirees will be admitted into a nursing home for some period of time (short or long term). Many retirees do not have a plan in place if their expenses were to spike due to medical expenses. Recent changes to Medicaid laws have made qualifications significantly more difficult. While Medicaid may be an option, the flexibility of private care or in-home care may be a preferred solution.
Action Steps. Key considerations for pre-retirees and retirees are to develop a financial plan based on an estimate of expenses and resources, as well as developing a plan to extend the life of your assets. Importantly, examine your plan regularly. More specifically, distinguishing between must-haves and nice-to-haves is critical. Knowing how your assets are allocated will influence how they will grow or shrink in real dollar (after inflation) terms. Identify where your income will come from in retirement is necessary. Utilize tax-advantaged and tax-free sources of income – it can make the difference between an unsuccessful retirement and successful retirement.
Take the time to review your financial circumstances now. Utilizing the expertise of a financial advisor to build a financial plan or review your existing plan is great way to assure an improved retirement.