Whether you’ve saved a little or saved a lot, some people can grow complacent about their retirement planning strategy. This is especially true of the current generation of workers, who saw their parents sail easily into retirement. It’s important to remember that your generation of retirees will need more money to stay comfortable when you stop working. Consider the following five trends, and consider their impact on your future retirement lifestyle.
Your life expectancy has increased. In the 1950s, the average person could expect to live to 68 years old. Today, we’re looking at an average life expectancy of 79 years. It’s great to have another decade or so to enjoy retirement, but that’s also another decade that you need to fund your retirement!
You probably don’t have a pension. Decades ago, pensions were a popular retirement funding choice. Companies were willing to offer their employees a guaranteed income for life. These days, pensions are becoming less and less common. Even companies that currently offer a pension are phasing them out in favor of defined contribution plans like 401(k) funds. This puts the burden of retirement savings more heavily on your shoulders.
You will spend more on health care. Over the past couple of decades, the cost of health care has increased at two to three times the rate of inflation. Even now, with the inflation rate near zero, health care costs are increasing by 2 to 4 percent each year. Contrary to common belief, Medicare does not cover all of seniors’ medical bills and prescription costs. Supplemental insurance will help to relieve the burden, but you should still expect to pay more for your health care than your parents did.
Social Security isn’t what it used to be. The entire Social Security program was overhauled in the 1980s, in response to a growing strain on the program’s budget. Your parents may not have paid income taxes on their Social Security benefits, but chances are good that you will. The “full retirement age” was also redefined, so today’s retirees are waiting a year or two longer to receive their benefits. If you’re forced to retire early, you need a way to cover your living expenses until you file for Social Security.
You may not be affected by all of these issues. But the point is that the overall picture for retirees today is different than it was for the previous generation. Meet often with your financial planner to discuss your goals, and assess whether your savings strategy is on target with your expected retirement date.
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