Preparing for retirement is complex for many reasons. With improved medical care, a person retiring today at typical retirement age may need their savings to last 30 years or more, making it necessary for retirement funds to sustain a longer life span. There are additional challenges when planning for retirement to be aware of, here are a few to keep in mind:
Less Support from Employers
More companies have replaced pension plans with defined contribution plans putting added responsibility on the employee. The rise of entrepreneurs leaves many without access to an employer-sponsored plan creating a need to have a self-started, individual retirement plan in place.
Shrinking Social Security
Since 1975, Social Security law has decreed that benefits be adjusted annually to keep pace with inflation, this is referred to as the Cost of Living Adjustment (COLA). There is no requirement that this adjustment produces a yearly increase and the 2020 COLA was 1.6%. This doesn’t adequately reflect the growth of some of the more costly expenses retirees encounter such as health care, property taxes, home repairs, and homeowner’s insurance.
Rising Health Care Costs
It’s no secret health care costs have risen drastically in recent years and the later years in life often account for the highest expenditures. It’s important to have the right type of healthcare you need within your budget. It’s also important to consider potential out of pocket costs, long term care needs, and gaps in coverage due to age of retirement and eligibility for Medicare.
While low inflation rates sound positive for individuals on fixed incomes, they also provide low earnings on the money in savings and conservative investments like bonds and CDs. Retirees may need to take on some risk to increase earnings to sustain financial requirements in retirement.
Planning for and managing retirement is complicated in every economic environment. Whether your retirement is just around the corner or in the distant future, we’d be happy to discuss strategies to ensure your retirement funds set you up for a successful retirement and hedge against the challenges retirees face in this day and age.