Retirement is meant to be relaxing, but the thought of retirement for some may instead be stressful. A common concern many clients have is whether they will have sufficient income or savings to be able to have a comfortable retirement. Clients often wonder when they need to start saving and what is the best strategy. If you get your estate planning attorney to help with your retirement planning, you should be able to avoid most of the common mistakes.
Be sure to put away sufficient savings
It is simply a matter of mathematics. The sooner you start saving the more you will have accumulated by the time you decide to retire. If you want to have enough financial assets available when you retire, you need to open your savings account as soon as possible and start making regular deposits. The sooner you start, the more compound interest you will ultimately be able to earn.
For instance, a 25-year-old who intends to retire at age 65 with $1 million, would need to save approximately $345 each month for 20 years, with investments earning 8% per year over the next 40 years. Conversely, a 45-year-old with the exact same retirement goal of $1 million must save $1,698 per month for the next 20 years. That’s nearly four times a much.
Don’t forget to update your retirement plan
It is essential to review your estate plan periodically, as well as your retirement plan. It needs to be looked over so you can make all necessary modifications as things change over time. It is very likely that you will need to make adjustments to your plan. For example, you may need to address changes in the market that may have an unfavorable effect on your investments. You may also need to amend your plan when there is a change in your income or expenses.
Another consideration is that substantial changes in your family situation usually warrant adjustments, as well. For instance, the birth of a child or grandchild, marriage, divorce, or the death of a spouse or other beneficiary normally require revisions. These events could change how much you have available to save for retirement.
Don’t overlook the need for long-term care
Caring for an aging parent requires a substantial amount of time and money. Your savings could easily be exhausted by medical expenses alone unless you plan carefully. According to some reports, almost 70% of retired individuals need long-term health care at some point during their retirement, if not before. For this reason, it is crucial that you consider, not only your long-term care options but also how the need for that care will impact your retirement plan. If you plan ahead, you can be sure to have sufficient funds to cover your health care expenses. If you never need long-term care, then you will simply have more money to enjoy your retirement.
Recognize the potential for higher health care expenses
Long-term care expenses are not the only thing you need to consider. Routine health care expenses can also be an issue, particularly if you fail to consider the fact that those costs will rise by the time you actually retire. While you may not necessarily need a nursing home, you could still require more frequent trips to the doctor as you age. A major goal of retirement planning is to be prepared for handling the increased costs of health care. However, if you fail to take into consideration the potential increased costs when creating your retirement plan, you will likely face financial issues during your retirement.
Keep your retirement goals reasonable
A common concern for most clients is knowing exactly how much income or assets you will need to retire. It is certainly a challenge trying to determine what you will need to maintain your current lifestyle 25 or 30 years in the future. If you don’t get it right, you run the risk of having insufficient financial resources for retirement. On the other hand, if your goal is unreachable because you believe you need much more money than you really do, then you will be discouraged and likely accomplish nothing.
If you have questions regarding estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.