Category Archives: Retirement Costs

How to Make Sure You Have Enough Money to Retire

how to make sure you have enough money to retireThe traditional answer to the question, “how to make sure you have enough money to retire”, used to be 4% and 70%! For starters many planners felt that if you had 70% of your pre-retirment income, you were in good shape. Less expenses such as commuting costs, clothing, lunches etc. meant that you did not need as much income. They also felt that if you withdrew 4% of your assets saved for retirement you had a better than 90% chance of your money lasting for the rest of your life. Many investment advisers are feeling that these rules need to change. Demographics are changing.

For example everyone is living longer, men on average now live 19 years after they retire at 65. Women live 23 years on average after 65. Many will also need elder care. In fact 7 in 10 people will need help and will need the funds to pay for the services they receive. Today many also carry debt into retirement, which will need to be planned for as part of their retirement years. Although inflation is well under control and has not matched the high teens back in the 80’s. Inflation still adds up at two or three percent every year. And then there is the cost of health care which is slowly increasing at a rate above the inflation rate.  We believe it is time to save more and we have five rules to consider.

How to Make Sure You Have Enough Money to Retire

Here are 5 rules to consider that may be helpful. While it is not fun and exciting, These rules will help answer the question, how to make sure you have enough money to retire.

Track all of your expenses now while you are still working. Identify those that will continue after retirement and make adjustments to your retirement budget accordingly.

Try living as if you are retired now on a 70% budget. You may have to make adjustments to current spending habits and generally adopting a less expensive spending profile.

Increase your savings to a level that can provide you with five or six  percent of your annual salary pre-retirement. The more you can save, the better off you will be. Six percent of a million dollars is $60,000 a year. Can you live on that?

Check  out your post retirement income. How much will come from social security, how much will come from your company pension? Knowing these numbers, you may find that your current savings may be in line with what you need to retire.

Invest to generate income, diversify, avoid high risk investments and stick to blue chips. Avoid reacting to the market ups and downs. Focus on equities with a strong history of paying dividends, year after year. They should have a history of increasing those dividend every year. Although not guaranteed, these are auto raises for you in the future.

Retirement Penny Pinching

Retirement Penny Pinching

Are you worried about retirement penny pinching that you are going to have to do? Perhaps you did not save enough for retirement. Or suddenly found yourself out of work. Maybe there was an illness that prevents you from working? These are all issues that unfortunately cause many older people to pinch pennies in their retirement. They may have to find another job.  No one wants to be uncomfortable in retirement. We all want to enjoy the good life after working all of our lives at a job that we may or may not have enjoyed. How do you avoid having to be careful about how much money you spend while retired?

Retirement Penny Pinching

The obvious one is to work longer but not everyone can. Even if you do work longer it never hurts to have a backup plan that will help you if you suddenly find yourself out of work and unable to live the life you always thought that you would. Here are some ideas in addition to working longer.

Reverse mortgages – are advertised a great deal and have the benefit of providing access to the equity you have in your home. It does mean that you will have a mortgage which many people do not like to have after they are retired, but it does provide a source of funds to use while retired. Remember to negotiate the best terms you can and especially a low interest rate

Reduce spending – in non essential areas. Some might consider this penny pinching. But it is also about setting priorities. Spend money on those things you want vs those that are really not needed.

Save more – if you are still working, set aside more money for retirement. The more you save now, the more you will have during your golden years. Remember to invest wisely, conservatively, diversely and seek several opinions before you make your decisions.

Start saving early – for the youngsters that are reading this, begin saving for retirement now. I know it seems like a long way off. But the beauty of compound interest means you will have a large sum sitting their waiting for you when you do retire. If you have a pension, then it is a special bonus providing you with an excellent quality of life in retirement.

Leaks in your Retirement Savings

Leaks in your Retirement SavingsYou have worked hard to save for retirement. Your family may have forgone other experiences etc in your life to save for retirement. You expect that there will be enough money at the end of your working years to live comfortably. But what if you found out that there are leaks in your retirement savings in small amounts over the years. That this amount was going to make you have to work a few years longer. Or perhaps forget about trips that you may have planned for your retirement. This is the subject of this post. How to identify leaks in your retirement savings? Also how to prevent them from making a significant difference in your retirement life style.

Leaks in your Retirement Savings – What are they?

They are divided into two types, some under your control and others that are smaller and sneaky but still have an impact on your total value of your savings when you retire.

  • Hardship withdrawals
  • Withdrawals prior to full retirement
  • Loans from your retirement plan
  • Cash outs from plans
  • Excessive trading fees
  • Mutual Fund fees
  • Administration fees
  • Selling low and buying high

More Details

Hardship withdrawals – funds are withdrawn and not repaid to deal with extreme hardship issues such as medical situations

Withdrawals prior to full retirement – funds withdrawn after age 59 to deal with pre-retirement issues and not repaid. Once these funds are withdrawn they are not earning income and you also lose the compounding effect

Loans from your retirement plan – taking a loan from your plan and not repaying it. Not only do you have to pay taxes on the withdrawal, you lose forever any future income that this money might have generated.

Cash outs from plans – employees change employers all of the time and you do not want to lose site of the money that has been set aside for your retirement Transfer the funds into the new employers retirement fund or into a locked-in plan

Excessive trading fees – trading fees are expensive and if you are doing a lot of trading you could be eating into any profits that you may have made.

Mutual Fund fees – they charge a fee usually hidden regardless of whether the fund does well or not. Can you afford to pay 1% to 2% every year to your mutual fund management team?

Administration fees – some advisers charge a fee every year to administer your account. Is it reasonable? Can you get the same service or better service somewhere else?

Selling low and buying high – timing the market is extremely difficult. Most people end up buying as the market is increasing and then selling as it is declining because they are afraid they are going to lose everything. Invest in blue-chip dividend-paying equities and focus on the long term.

What is the true cost of retirement?

cost of retirementIf you are about to retire you might be wondering what is the true cost of retirement? Most financial advisers use a couple of assumptions in assessing how much money you need to save for retirement. The first is that they assume the standard duration of retirement will be 30 years. This is regardless of your health and retirement date. The second assumption that many advisers will use is that you will need 70% to 80% of your income after retirement. This is supposed to cover your expenses and retirement plans.

As always, with many planning activities, the devil is in the details. Every person and every couple has different requirements and needs. They have different situations that they are dealing with. A retirement plan should be customized for the couple or individual. It should ensure that they have sufficient money available for them in retirement to maintain their quality of life.

What is the true cost of retirement?

These two assumptions are a good starting point only.

For example, if you are 65 and just retiring, the 30-year life expectancy may be fine for one couple. Especially if their ancestors lived well into their 90s. On the other, if hand your family history suggests living to 70 or 80 years of age, a 15-year plan might be more practical.

True Cost of Retirement

With regards to only requiring 70 to 80% of your pre-retirement income. There are many variables that should be taken into account. We will cover a few.

For example, consider if you’re still supporting children who are in college. They may have tuition payments and other related expenses. You may need more than 80% for the first couple of years.

Are you retiring debt-free? Is your mortgage paid off? Are you still paying a car loan? These are major monthly expenses that have to be factored into your pre-retirement expense. As well as your post-retirement expense. These factors will help decide if you will have sufficient money to cover all of your cash expenses during retirement.

Consumers also need to consider what retirement expenses will increase during the retirement years. For example, inflation has been pretty constant and in a range of 3% for the past 20 years. It will eat into your retirement income, particularly if you are on a fixed income. The longer you are retired the more inflation can be a factor. It is very important to factor in inflation.

Don’t forget Healthcare costs

Healthcare costs must also be considered based on your family’s history of healthcare needs and situations.

Your consumption will also change over the years. As you get older most people will spend less on clothing, food, and other daily expenses.

All of this needs to be factored into your retirement plan to ensure that consumers have sufficient money during retirement. Start with the 70 to 80% rule. Then adjust based on your own personal situation. You may also require the help of a financial advisor to create a retirement income model. It should be based on your savings and pensions as mentioned earlier

Don’t worry about outliving your money!

outliving your moneyDepending on who you talk to, someone who retires at age 65 will have another 20 years or so to live. This is a according to the statistics that are published by many government agencies as well as insurance companies. When you hear someone say. Don’t worry about outliving your money, it is difficult to really believe them. It can be a stressful time for many retirees. So it is important to really examine the numbers and determine if your savings will outlast you.

Insurance companies tend to exaggerate on longevity. They will suggest that you may live between 20 and 25 years longer than the average person. They also put fear into consumers wondering whether their money will last during their retirement years. This to encourage you to invest with them and use their investment products.

Outliving Your Savings

Many people worry about whether they will outlive their savings and end up being destitute. They worry about having to sell her house. Or live with family or worse living conditions that are not acceptable to them.

The reality is that most people will not outlive their savings. The statistics of living 20 years beyond your retirement age of 65 are actually quite generous. Most people will not live that long. Planning to live 20 years beyond your retirement age is quite substantial.

The reality for most people is that they should look at how long their parents lived after age 65. Then add five more years because we are more healthy and look after ourselves better than her parents did. This will be an indicator of the real age that you can expect to live.

Based on these calculations you can then figure out how long your money needs to last after your retirement. This is one of the ways that you can calculate your longevity.

Don’t worry about outliving your money

There are actually many other factors that will determine whether you have sufficient retirement money in your savings to last your lifetime.

For example, the stock market may go up or down, your pension from your company may last or not and you may have health issues that dig into your retirement savings. These factors and others are things that you should be thinking about and considering in terms of how much money you spend during your retirement years.

At the same time while you’re healthy you will want to enjoy your retirement years and spend some of your money on travel or some of the other things that are attractive to you.

Living on the income that is generated from your investments is one way to protect your retirement savings. At the same time if you have a significant amount of capital in your retirement plan making sure that you’re diversified and well invested in blue-chip stocks and bonds will also ensure that you do not suffer from crashes in the market.

The average withdrawal rate of 4% appears to be the industry norm of how much money should be withdrawn from your retirement savings plan. If you can generate income from the interest income from bonds, and from stocks, to dividends this will help to achieve a significant amount of that 4% and protect your capital through your retirement years.

We are writing many articles about these subjects and look forward to comments from people who are going through and planning their retirement and thinking about the same issues. Your comments and suggestions are welcome.

For more about retirement planning, click here.

Avoid going broke by age 75

Avoid going broke by age 75Many people worry about going broke during their retirement. There are a lot of things that can happen during your retirement and the essential planning includes making sure that you were planning for risk, and assuming that something will happen during that time frame. We have outlined six different things that people should plan for, or at least try to make sure that they are ready. Working at managing your investments can help you avoid going broke by age 75.

Life expectancy beyond 75

It used to be that most of us would be dead by the time we reached age 75. Nowadays many people are living well beyond 80’s into their 90s. Most people need to plan that they will live beyond 75 and look at what the impact will be on their income and their savings during that time frame.

Avoid going broke by age 75

Live on income

Another factor that everyone should consider is learning how to live on the income that they bring in each year. Avoiding touching your principal will ensure that you have income each and every year well into your 90s. As soon as you touch the principal you Lower your income potential and make it more difficult to live on the reduced income that you are receiving.

Set a budget

Setting a budget is always a wise thing to do. Focus on the amount of income you have each month, and all of the major expenses that you will have each month and during the year. Make sure that you balance the budget, in other words make sure that your expenses are lower or equal to your income.

Avoid spending the principle

While your savings are invested, the savings are generating income at whatever rate that you are receiving for each individual investment. As soon as you sell that investment, the income stops and you will no longer have that investment as a source of income. If you depend on that income as part of your living expenses one should think very carefully before they sell any particular investment.

Health costs

Health costs are another factor that many people do not calculate when they’re planning their retirement. They just assume that they will be healthy until they die and will not require treatment in hospitals or long-term care facilities.Long-term care facilities can cost upwards of $4000 per month meaning that your total cost will be $36,000 actually $48,000 per year. this is a huge sum of money for most people and if you’re living on a fixed income or one spouse must remain in the home it is very difficult to afford this kind of expense. Plan for your health care during your retirement.

Surprise costs

There are always surprise costs that crop up during retirement. It may be a new car, it may be a new roof, it may be significant health costs such as dental or other health costs, but there will be something that comes along. Make sure that you have investments and savings are ready to deal with those surprise costs whatever they are.

Avoid going broke by age 75 – Save enough in the first place

It maybe easy to say, save enough in the first place, however this is the crux of the problem for many people were facing retirement or are already in retirement. Work with a financial planner to figure out how much investment you need to have by the time you retire and have them figure out the amount of income that you need to meet the quality of life that you require during retirement. This is your life that you’re planning for and it is important to take responsibility and be accountable for the quality of life that you want to have while you are retired it could be as long as the third of your lifespan based on current living expectancy.

For more retirement planning ideas and posts, click here.

Retirement Planning Services

Retirement Planning ServicesHave you ever taken advantage of retirement planning service offered by a financial adviser? My adviser wants to sit down with me and go through all of my finances and assess whether I am ready for retirement or not and what steps I need to take if any to ensure that there is less risk and a higher probability that we will be comfortable in retirement. His offer certainly intrigues me and I like most people would like to know the answer to this question, “ am I ready for retirement?”.

But at the same time I am reluctant to share all of this personal information with someone who I trust but he is not family. In fact I do not even share this kind of information with my family other than in broad terms. We discuss details between my spouse and I when I can get her to listen, but we do not share with our kids even these kinds of details. It is just too personal and I am not sure that I want someone who is trying to sell me more and more products to know all of my personal financial details.

Retirement Planning Services – Too Personal

Having mentioned all of this we do have a detailed spreadsheet which I have discussed with my wife which plots all of our investments, the income they will generate and the growth they should average over the next 10 years. It also takes into account all of our income as well from pensions and investments from our savings.

We are focusing on living off of our income and not touching our principal which is a pretty good strategy. We wonder about when we should begin using our principle and enjoying it, but as long as we are comfortable I would prefer to wait and not touch our principle just yet.

Develop Your Own Strategic Investment Plan

Speaking of strategy, I have developed an investment strategy and I have reviewed this with my investment adviser to get his thoughts and even guidance. We kept it to one half page to keep it manageable and we keep it at the strategic level vs. discussing specific stocks unless there is some action we want to take on this stock.

We discuss this strategy twice a year and update it accordingly to ensure that it is current and reflects current conditions. The job if implementing this strategy is up to me with the help of my adviser and I do not feel that I need to go beyond that in terms of sharing financial information.

We are wondering if other readers have this same approach to investments and retirement planning services. A review is a good thing; however we just do not feel that it is appropriate to share everything with your adviser. This is a personal thing and we wonder how other people feel about this approach. If nothing else, make sure that you have an investment strategy and plan of your own. If you are not the type to do your own plan, then having someone else do it for you with all of your input might actually be a good thing.

Let us know what you think about retirement planning services. For more about retirement costs and planning, click here.

Retirement portfolio to match your expenses

Retirement portfolioI have heard many seniors talk about how they are living on a fixed income. Inflation is increasing and making their income not go as far as it once did. They worry about whether they will have enough money to do some of the things they want to do. They are getting older and must live at the same level of Retirement portfolio income. When many of these people complain about being on a fixed income they are actually receiving a small increase every year. This is an increase in their pensions which usually have a small inflation increase every year.

Most feel that these small increases are clearly not enough. They worry that inflation will really overtake them. Some are used to salary increases when they were working that increased their salaries faster than the inflation rate. Those types of salary increases are long gone. But that is no consolation to the many seniors who live on a fixed income even if there is a small increase every year. The bottom line, we all need to evaluate all of our expenses. Reduce where we can to counter the effects of inflation.

Increase Your Income

One way to gain increases in your income most years is to invest in dividend stocks Focus on those that increase their dividend every year. They should also have a growth component in their stock value. Although there are no guarantees, these stocks pay a dividend so you do have income from your investments. If you invest in the right companies, you may get an increase every year. In fact, some companies have a record of increasing their dividends for many years. This is an enviable record and can be an important component of a retirement portfolio.

With dividends increasing every year your income is increasing. If the stock does well the value of the stock will also increase. When it comes time to sell your investment to be used as part of your retirement, you will be selling a stock that has also increased in value. This will help deal with the increasing inflation that we all know is there and will continue for many years.

Retirement portfolio – Avoid Cashing in Your Principal

Consumers who are retired and living off of pensions may find that they can live on the pension income they receive and also the income they generate from their investments without having to touch their investment principal. If this is the case, they are in an excellent situation to live into their late years without having to worry about having enough money to live on. In fact, your investment adviser can calculate the income rates and the rate of seniors may want to withdraw their money to ensure they can enjoy it in this situation.

Many people are not in this position. This is one of the reasons we urge people to save for their retirement regardless of whether they have a pension or not. It is an additional safety margin in case your pension is not as large as expected or inflation is much higher than anticipated.

Retirement Costs Confuse Soon-to-be Retirees

Retirement Costs Confuse Soon-to-be RetireesRetirement Costs Confuse recent retirees are confused about what the costs are going to be when they retire according to recent surveys. Those people who are about to retire and those who suddenly find themselves push out of jobs before they were ready are often worried about whether they will have enough money to last them through retirement and what kind of quality of life they will have while retired. Most of us want to maintain our present lifestyle as a minimum and since we now have more time on our hands we want to be able to the things we never had time for. But the big question everyone wonders is, will they have sufficient income to live that life that they may be dreaming about.

Retirement Costs Confuse – What Are Consumers Concerned About

There are lots of things on the minds of people who are retiring these days that will affect how well they will live during retirement. We will list a few of these:

  •         Property taxes seem to keep going up
  •         Price of food is going up
  •         The fluctuation of their investments
  •         Cost of utilities continues to rise
  •         What medical costs will they have
  •         Have they set aside enough savings
  •         Are these savings well invested

These are just a few of the items people worry about and there are a lot more. There are options that can be considered, such as working longer and spending less. These may not be the preferred options, however, if there is not enough to go around, then some tough decisions sometimes need to be taken.

Impact of Inflation

The longer you are retired, the more inflation will creep into the picture and impact your purchasing power. Most people do not even think about inflation and are suddenly shocked when their indexed pensions if they are lucky enough to have them do not keep up with the rate of inflation. They have no choice but to cut back in other areas. Inflation will play a large impact even more since people are living longer than our parents ever did.

Start Saving for Retirement Now

If you are young and expecting social security in the US to pay for your retirement or CPP and OAS in Canada, think again. While this income certainly helps, it does not keep up with inflation and the amounts provided are not enough to live comfortably on. Retirees need to have either pension income or savings income to help them top up their annual income to live on. If you are young and reading this start saving now if you are close to retirement evaluate your situation and make a decision to keep working or live on what you have. Avoid surprises if you can.

Get Help with Your Retirement Planning

Not everyone has the knowledge or the skills to plan their retirement. They may lack information about investments, yields, savings rates, payout strategies and investment strategies designed for the long term. They may not understand the impact of inflation or the various tax rates that apply in their situation.

Retirement Costs Confuse Soon-to-be Retirees – Tools

There are lots of tools available online that can assist some readers with their decisions. However, there are really only two choices that you can make if you want to plan for retirement. The first is to find a retirement investment adviser that you trust. Then begin discussing your retirement objectives and goals, the assets you have. Focus on the assets you will need to achieve the kind of retirement that you want to have. Some people will just go on blind faith and let the adviser make all of the decisions. We do not encourage this at all. Be informed and learn as much as you can, which leads us to the second option.

The second option is to teach yourself. Read everything you can about retirement planning and investing. Attend seminars, read books, talk to advisers. Learn to use the tools that can be purchased to help with investment planning and retirement planning. It may take effort, but it will be interesting and challenging which is something that we can all use while retired.

Personally I like a combination of the two. I have spent a lot of time investigating and learning about retirement strategies as well as investing. I make all of my own decisions. But before I act on them, I always run them past my adviser first. He may have some great ideas and counsel. Then, I finalize my decision.

This is by far the best approach for me. I get a lot of satisfaction out of the effort, especially when these decisions pay off. Sometimes they do not but that is part of the risk in life.