Retirement planning for the long haul
When it comes to retirement planning, there's good news — and bad news. We'll start with the good news. Statistically speaking, you'll likely be retired for 20-30 years (or more).
Now for the bad news. Statistically speaking, you'll likely be retired for 20-30 years (or more).
In the U.S., we're very fortunate to have a long average life expectancy. According to the Annuity 2000 Mortality Table, a 65-year-old female has a 50% chance of living to age 88 and a 25% chance of living to 94. For a 65-year-old couple, the need for thinking long term is even greater as there is a 50% chance one spouse will survive until age 92 and a 25% chance one spouse will survive until age 97.1
What does that mean for retirement planning? First, it means your retirement savings may have to last a long time. Consider that when you calculate how much you need to save for retirement — and how much you can withdraw each year without draining your savings too early. This is why many financial professionals suggest withdrawing no more than 4-5% annually adjusted for inflation.
Longevity also impacts the kinds of expenses you'll face during retirement. Think back over your major expenses for the last 20 or 30 years. For instance, how many:
- Cars have you purchased?
- Roofs have you replaced?
- Trips to the doctor (or hospital) have you made?
You'll still face many of the same expenses over the coming decades. And while some expenses may decrease over time, others — particularly healthcare — will probably increase. In fact, retirees age 65 and over spend an average of $5,040 per person each year on out-of-pocket costs for deductibles, copays, premiums and other healthcare costs NOT covered by insurance.
Make sure you're prepared
Before you retire, make sure you have a good understanding of:
- The annual income you may need during retirement
- How much you'll need in savings to generate that income
- Strategies to help make your savings last as long as possible during retirement