Retirement 101: Keep These Factors In Mind As You Plan

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Sheraz Iftikhar is the President and Chief Executive Officer of Arch Global Advisors.

Nowadays, people are living longer than in decades past, with average life expectancies gradually increasing over the years and currently sitting at 78.9 years in the U.S., according to U.N. estimates. For comparison, the average life expectancy in 1950 in the U.S. was 68.1 years.

This longer average life expectancy means that for many people, retirement could last 20 years or more, which could strain their budget and lifestyle if they have not started proper financial planning at an early stage. Today I will discuss some key considerations about retirement and financial planning so you can enjoy your retirement and get the most out of it without having to compromise because of financial constraints.

Potential New Challenges As A Retiree

When someone begins retirement, they are already facing a huge life shift from being in the workforce to being a retiree. Many people don’t realize that if they haven’t started to plan for the adjustment in their income, they could be in for a big surprise financially. During retirement, people generally want to maintain the same lifestyle they had while working. However, many retirees unfortunately won’t be able to do so. The average American retiree must make adjustments to accommodate for their lack of steady income. These adjustments could include downsizing their primary residence, moving to a more affordable state, eating out less or spending less on shopping.

Moreover, two of the biggest expenses that can hurt a retiree’s budget are healthcare and long-term care expenses they might face during retirement. For example, 2021 estimates by Fidelity show that the average couple retiring at 65 may need roughly $300,000 in healthcare-related expenses between retirement and life expectancy. And that’s not accounting for healthcare cost inflation, which averaged 4.5% from 2017-2019. Furthermore, retirees might need to receive long-term care, whether that’s moving into an assisted living facility, nursing home or home care, which had median costs of roughly $19,000 to $106,000 annually in 2020, according to Genworth. That also doesn’t account for the average inflation of facility and in-home care costs, which was 1.88%-3.80% from 2004 to 2020, and that people who require long-term care do so for an average of three years. So how are retirees expected to cover all of these expenses?

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For starters, a large portion of the country’s population depends on Social Security benefits to provide supplemental income to their savings. For example, although the amount differs from person to person, the average Social Security benefit for retirees was $1,543 per month from this program. This is why some retirees struggle even with their savings and these benefits. Furthermore, a recent projection from the Social Security Administration (SSA) indicated that, without any changes to the program, its Old-Age and Survivors Insurance fund would be depleted by 2033, and the SSA would only be able to pay out 76% of expected benefits by taxing income. Of course, this news not only causes concern but can weigh heavily on long-term financial planning for current and future retirees. However, Social Security is one of the most protected and supported government programs, so I expect Congress to intervene before that scenario plays out.

Save Early And Spend Diligently

So, the question becomes: What can retirees do to safeguard their savings, continue their lifestyle and enjoy their retirement to the fullest? One of the advantages of retirement is it provides more time to follow interests, hobbies and passions previously put on the back burner. As a result, retirees can do things like travel more frequently, play more golf or pick up sailing. However, all of this comes at a cost and can affect your savings if you are not managing your financial planning properly.

The average retirement savings for people between the ages of 60-69 is $229,100, according to Fidelity. Although this seems like a significant amount, it often gives retirees a false sense of comfort and can lead to extravagant spending habits, especially since many also collect monthly Social Security benefits. With financial planning for retirees, the rule of thumb is to only take 4%-6% of your savings in yearly distribution. This means that if a retiree has $229,100 in savings, they should only take an annual distribution of $9,164-$13,746 from their savings to disperse over 12 months. By utilizing this strategy of moderating your income from both your savings and monthly benefits, you can begin to build a strong financial framework so that you may enjoy your retirement years.

An equally important component of a successful financial plan is to invest in your savings. Ideally, you would begin investing for your retirement at an early age so you are prepared to retire when the time comes. Furthermore, as a retiree, it’s crucial to invest prudently and not chase returns; the risk that a 30-year-old’s portfolio can sustain is very different from the risk a 60-year-old’s can handle. Therefore, establishing an appropriate risk metric is key to having a successful financial plan as a retiree, along with investing early and spending diligently where possible.

Final Thoughts

It is more important than ever to plan for retirement. Of course, no one wants to have to downsize their living when they retire. By having a solid financial plan in place — investing early, spending diligently and moderating a steady stream of income into your account — you won’t have to compromise your lifestyle and can control your finances. This strategic financial planning will ultimately help you safeguard your savings and bolster your income so you can continue to live your best life as a retiree without compromise. 

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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