by Jeff Helms, CFA
Over the next twenty years, roughly 79 million Americans will cross the threshold to retirement, joining the millions of folks that are already retired. Welcome to what we call “Generation R”. The Retirement Generation.
In my years of retirement research, I’ve identified five common risks that all retirees face. These are detailed in my new book, “Generation R: A Retirement Nation at Risk.” Several of these risks defy conventional retirement wisdom, so pay attention. It’s important that current and future retirees take heed – for any of these risks can seriously compromise a long, rich, and rewarding retirement lifestyle. Here they are:
Outliving Your Assets
This new generation of retirees will live longer than any other generation in human history. In 1970, the average age of retirement was 65, and on average, you expired at around age 72. Today, the average age of first retirement is 58, and many will live into their 90’s. We’ve essentially quintupled the amount of time we spend in retirement, and sadly many people aren’t prepared for it. According to the annual Metlife Retirement Survey, the average person plans for just 19 years of post retirement living. Ensuring that you position your retirement assets to support you for the long haul should be a critical element of your planning.
First, let’s define this. Inflation is nothing more than the rise in cost of good s and services, and it’s been a constant since time began. When you retired at 65 and died at 72, a 3% annual inflation rate probably didn’t concern you. However, 30 years in retirement with a 3% inflation rate is a different picture. If inflation averages 3% for 25 years, you’ll need twice as much money just to maintain your current standard of living. So, a $75,000 per year lifestyle will cost $150,000 by 2034. Don’t let inflation sneak up on you and compromise your retirement lifestyle.
In the past, conventional wisdom dictated that you place all your assets in “safe” investments like CD’s and bonds when you retired. These investments typically carry lower returns due to their focus on preserving principal. But, when you factor in inflation, taxes, and a reasonable rate of withdrawals to support yourself, you’ll find that these instruments may not last for a 30 year retirement. You might run out of money. Investment returns that at least offset inflation and taxes are a critical component of any long term retirement strategy. You should invest accordingly.
Here’s the big one. Medical advance and better healthcare have cured many of the ills that caused premature death, but they haven’t cured all the things that make us sick. The Center for Retirement Research at Boston College projects that by 2030, as much as 35% of your after tax dollars could go to support your healthcare needs. You’ll need a solid primary healthcare plan and a long term care strategy in case you or a spouse need long term care, which is not covered by Medicare. (Many mistakenly believe it is.)
The traditional notion held that your taxes would be lower in retirement than in your working years. Based on the current state of our economy and our budget deficit, I would suggest this is faulty thinking. You’ll need to carefully manage your tax bills in the future through prudent strategies to pay as little in taxes as is legally required of you. Every dime you pay in taxes is a dime out of your retirement funds.
In a future article, I’ll provide the antidote for each of these risks. Until then, best of luck in your retirement planning!
About the Author : Jeff Helms, CFA
Jeff Helms is a certified retirement coach and the founder of Reinventing Your Retirement, a retirement education program designed to educate individuals on retirement issues, challenges, and solutions. An accomplished public speaker, Jeff addresses audiences throughout the nation on the changing retirement landscape.
Jeff is author of two books on retirement. His latest book, “Generation R: A Retirement Nation at Risk”, details the coming retirement challenges our nation faces and provides readers with insights they will need to succeed in planning for their retirement. He has been featured on Nightly Business Report, and was recently appointed to a statewide task force examining retiree issues by the Chief Financial Officer of Florida
He serves as a pension trustee for the City of St. Augustine and also manages a retirement planning and consulting practice serving clients throughout Florida.