We all enter the workplace as young adults thinking things will work out in a very generic, easy to map kind of way. We’ll work until we’re 65, we’ll retire, and we’ll die at maybe 80 like our parents did. Income will be a steady incline, and if we save according to that incline, we should have the right amount of money to live from. That’s for the organizers. Others of us sort of realize we have nothing in the bank decades into adulthood and sock away cash according to the same sort of general guidelines in mind about how much we’ll need in our senior years.
What’s difficult about retirement planning is the unknown. We don’t know how much money we’ll make at work, we don’t know when we really will retire, or how old we’ll be or what inflation will be like, so it’s hard to know what that magic savings number should be, much less if we’re on the right path to earning that money.
Never fear, there are some things you can do now that you’ve lived through all those unforeseen moments and retirement is in the visible future. The idea behind savings, as you may now know, is that you must account for the risks – that is, your health risks. Every day your health is a risk, no matter what age, and you never know what’s going to happen. In doing some math, thinking about health risk failure will help make sure that you’re covered, even in the worst-case scenario.
The Steady Versus The Rocky Path
When planning, it’s easy to look at our balanced path, what we’ve been doing for years. It stands to reason that life will continue in the pattern its always been on. But this would be wrong. In fact, 70 percent of workers go on disability leave, and that can, or maybe already has, really disrupt your retirement financials. For example, if you are without income for two months while you wait for your disability claim to go through, that’s money that comes out of your savings, and it could mean late fees or increased credit fees. Even after you get your claim, your health is now vulnerable to insurance companies, and you could have trouble with future claims or increase in coverage.
Money out of savings is often never replenished, or not for some time, and that takes a chunk out of interest-bearing retirement funds. There are other reasons the path gets disrupted. Perhaps you took time off to care for children or an ailing parent, in which no money is received, or you took several sabbaticals and now have years of income that you not only haven’t saved, but you dug into savings for the time off. Whatever it is, you shouldn’t fret over the reasons, but you will need to make up for that time now.
When to Retire
You know, this is a tricky little question. These days, we live to age 90 and beyond. Retiring at the legal age of 65 isn’t looking too realistic for many people. That’s over two decades, even three, without any salary. A lot of adults are working to age 70, and it’s not a bad idea to weigh that option.
What’s more, you’ll need to do something for all that time. Yes, the golf course and the swimming pool beckon, and it’ll be wonderful, but after all those years of working, you probably want to think a little bit, too. A shocking 30 percent of people who retire are more likely to die the year they retire, rather than the year before they retire. The reason is a loss of purpose. We all want to feel needed, and departing from the workplace can leave many retirees feeling worthless. You’re not! But maybe you should make sure you’re really ready to leave the office once and for all before you pull the cord.
How Much You Need
There is a simple formula everyone uses to determine their retirement needs: it’s 75 percent of your last salary income, and multiply that times 20 years. This formula comes from lower income payments, which means lower income tax, retirement lifestyle changes, and write offs, which is the 75 percent. Times 20 years and you’ve got your number. But not so fast. This equation rests on a retirement age of 65 and a mortality age of 85. It also assumes you’ll have perfect health, no vacation plans, and no major expenses. While you may downsize your home, you could also buy a new car or two, refurnish your new house, and maybe even decide to have a second home some place. There are a lot of factors that may mean that you actually need 100 percent of your last income.
Plus, 20 years isn’t going to cut it. As we know from above, you probably need a minimum of 25 years worth of savings. And, here’s that risk again, your health will not be perfect all that time, so you’ll need to allocate more money for healthcare. Cash you once spent on splurge travel might be spent at the eye doctor for a glaucoma operation, for example. The expenses don’t necessarily go down. It’s important to note, these things aren’t necessarily life and death, but you certainly need to see!
People in their 50s and 60s should make sure they have money saved for the worst case scenario. Working longer, restructuring lifestyle, and sorting out a realistic savings plan is the best way to make sure your retirement is fully funded and healthy.