Many clients become anxious when the topic of retirement planning is mentioned. Clients question whether or not they have sufficient income or money set aside to have a comfortable retirement. Should you start planning now and how, exactly, should you save or invest your money? Many of the questions that must be asked in retirement planning can seem overwhelming. Just be sure to avoid these common retirement planning mistakes, and consult with your estate planning attorney, and you can successfully create your plan.
Avoid Unreasonable Retirement Goals
The reality is, few clients have a reasonable idea of how much money they will need to maintain their current standard of living, after they retire. Their estimates are either too high or too low. If you assume you need substantially more than you really do, then your retirement goal will most likely be unattainable, causing you to be discouraged. If, on the other hand, you set your goal too low, then you will certainly encounter financial difficulties when the time comes to retire.
Be sure to consider the likelihood of increased medical expenses
Unfortunately, most people fail to account for the inevitability that the costs of health care in the future will be much higher than they are now. It is crucial that you accurately estimate how much those costs may be when it is time to retire. That way you can more accurately anticipate your income needs. For example, it is estimated that a 65-year-old couple retiring in 2015, will likely spend an average of $266,589 in healthcare costs. Furthermore, you should not assume that Medicare will be sufficient to cover all of those medical costs. Relying solely on either Medicare or Medi-Cal could be a costly mistake.
Include a long-term health care plan
The time and expense required in caring for aging individuals, in general, can be overwhelming. That is especially true, if you are not prepared financially. The medical costs can potentially deplete all of your savings. It is estimated that there is a 70% chance that retirement age individuals will require health care during their retirement years. It is extremely helpful to be familiar with all of your long-term care options so that you can plan for those expenses, as a part of your retirement planning.
Make sure you have sufficient savings available
It goes without saying that, the earlier you start saving for retirement the more likely you will have accumulated sufficient financial resources for a comfortable retirement. Primarily, the longer you have a savings account in place, the more compound interest you will earn. For instance, if the retirement goal is $1 million at age 65, a 25-year-old needs to set aside $345 per month for 20 years, with investments earning 8% per year over 40 years. However, a 45-year-old needs to save $1,698 per month for the next 20 years in order to reach the same goal.
Don’t forget to update your retirement plan
It is very essential to evaluate and revise your retirement plan, at least every few years. This way, you can account for the changes in the market, your income levels and potential expenses. Another thing to remember is that, any significant changes, such as the birth of another child, divorce or marriage, typically require changes to your retirement plan, as well.
If you have questions regarding retirement planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.