Three Challenges to Properly Funding Your Retirement
As more and more of the Baby Boom generation approaches retirement age and live longer into their retirement years than did previous generations, the prospect of a government-sponsored retirement becomes less certain. Under this strain, governments may be left with no viable option other than reducing social security benefits and/or restricting their availability. Now, more than ever, the burden is on the individual to properly plan for and fund their own retirement and combat the greatest financial threats to their future quality of life.
Three of the primary challenges retirees are faced with in making sure they don’t “outlive their money” include:
The Impact of Inflation
The term “inflation” describes the persistent increase in consumer prices and the associated decrease in purchasing power. For workers, the effects of inflation are typically offset by a corresponding increase in wages that enables them to keep pace with rising prices. Of course a retiree cannot count on an offsetting wage increase and so must properly account for the damaging effects of inflation as they plan for their retirement years.
To illustrate the impact of inflation, let’s say you currently need $40,000 per year to live. Assuming a 3% annual inflation rate (the historical average), maintaining this lifestyle will require $53,756 ten years from now.
The Impact of Increased Healthcare Expenses
Most of us can expect our healthcare costs to increase as we get older. While Medicare provides some coverage to Americans, most of the healthcare costs for retirees are paid out-of-pocket. Adding to the challenge is the fact that the cost of medical care has outpaced inflation for each of the last 20 years. This trend is expected to continue in the years ahead and can double the cost of healthcare for retirees every five years.
The Impact of Unplanned Expenses
When planning for financial needs of your retirement years, it is important to build in a cushion for those unforeseen expenses that arise in all of our lives which might include home or auto repair, replacing aged appliances, family emergencies and the like. By “overfunding” your retirement account in comparison to your planned expenses, you can be prepared to meet these additional financial challenges.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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