Your Financial Future: Solid plan can lead to successful retirement
There are 10 elements that are often present in a successful retirement.
Written plans can serve as a roadmap to show the best way to reach your retirement goals. Most people do not have a written plan, and they tend to “wing it” as they go. Often, surprises pop up that knock the goals off. Unanticipated challenges often create negative outcomes. A written plan can help you anticipate these obstacles and have a plan to deal with them.
This written plan can act as a compass and show you how much income you will have each year and what your overall net worth will be each year in the future. This can help you decide whether you can afford special trips, home improvements or other major expenditures.
The second step is having a budget. You need to know how much income you need each month to cover your expenses and the other activities in your life. Budgeting is not accounting for every penny that you spend, but it is an overview of where your money goes each month. It allows you to determine if you are getting the value you want from your money.
The third step is having guaranteed income to cover your monthly expenses. Social security, pensions and annuity payments are some examples of guaranteed income that can last your entire lifetime. Guaranteed income is the thing most seniors say they desire in retirement.
The stock market can provide growth if the market keeps going up. However, you can easily run out of money if the stock market suffers big losses at the beginning of your retirement. This is known as sequential risk. When you need to pull money out of a 401(k) to live on in a down market, you are buying the losses. You need to avoid this possibility.
Hopefully you will live a long life in retirement. This means that your financial plan must have some inflation protection built into it. Prices of goods and services have risen 2 percent to 2.5 percent many times over history. If your written plan does not provide inflation protection, you will lose buying power and see your standard of living decrease over time. Do not let this happen to you.
Your plan must have a source for emergency money. Things happen unexpectedly, and they often cost money. This emergency money should cover three to six months of living expenses. This money should be nonqualified (not a 401(K) or an IRA) and be invested in something very liquid. This means that you can convert it to cash quickly.
Long-term care considerations are the fifth area we will discuss today. About 70 percent of people age 65 and over will need some type of long-term care during their lifetime. This care can cost tens of thousands of dollars each year. Medicare does not provide long-term care coverage. The only government program is Medicaid and this requires you to spend down your assets.There are some hybrid products that can help you with this cost without paying monthly premiums. Investigate them to determine if they might be an option.
In the next column, we will discuss the final five elements of a successful retirement. Remember, people do not plan to fail, they fail to plan.