Preparing for Retirement in Today's America
"The United States is the only country where it takes more brains to figure your tax than to earn the money to pay it." Edward J. Gurney
For much of the 20th century, retirement in America was traditionally defined in terms of its relationship to participation in the active work force. An individual would work fulltime until a certain age, and then leave employment to spend a few years quietly rocking on the front porch. Declining health often made retirement short and unpleasant. Retirement planning, as such, typically focused on saving enough to guarantee minimal survival for a relatively short period of time.
More recently, however, many individuals are beginning to recognize that for a number of reasons, this traditional view of retirement is no longer accurate. Some individuals, for example, are voluntarily choosing to retire early, in their 40s or 50s. Others, because they enjoy working, choose to remain employed well past the traditional retirement age of 65. And, many retirees do more than rock on the front porch. Retirement is now often defined by activities such as travel, returning to school, volunteer work, or the pursuit of favorite hobbies or sports.
With proper planning, retirement needs can be met and an interesting and rewarding part of one's life can be enjoyed.
Longer Lives
The single most important factor in this changed retirement picture is the fact that we now live much longer lives than before. A child born in 1900, for example, had an average life expectancy of only 47.3 years! However, for a child born in 2002, average life expectancy has increased to 77.3 years. Today, due to advances in health care and better nutritional knowledge, it is prudent to plan on living to at least 90 years of age. According to the 15th Annual Retirement Confidence Survey (RCS), older workers are more likely than younger workers to indicate they have tried to calculate how much money they will need for a comfortable retirement.
Paying For Retirement
Providing a steady income stream is often the key problem involved in retirement planning. Longer life spans raise the issue of the impact of inflation on fixed dollar payments, as well as the possibility of outliving accumulated personal savings. Social Security retirement benefits, and income from employer-sponsored retirement plans typically provide only a portion of the total income required. If income is insufficient, a retiree may be forced to either continue working, or face a reduced standard of living. According to the RCS report, most workers have little put away in savings for retirement. The report states that 52% of workers have less than $25,000 saved for retirement, while 11% have $250,000 or more.
Health Care
The health benefits provided through the federal government’s Medicare program are generally considered to be only a foundation. Often a supplemental Medigap policy is needed, as is a long-term care policy, to provide needed benefits not available through Medicare. Health care planning should also consider a health care proxy, allowing someone else to make medical decisions when an individual is temporarily incapacitated, as well as a living will that expresses an individual’s wishes when no hope of recovery is possible.
Housing
This question involves not only the size and type of home (condo, house, shared housing, assisted living), but also its location. Such factors as climate and proximity to close family members and medical care are often important. Completely paying off a home loan can reduce monthly income needs. And arrangements such as a reverse mortgage may provide additional monthly income.
Estate Planning
Retirement planning inevitably must consider what happens to an individual’s assets after retirement is over. Estate planning should ensure not only that assets are transferred to the individuals or organizations chosen by the owner, but also that the transfer is done with the least amount of tax. For 2005, the estate tax exemption amount is $1,500,000, the gift tax exemption amount is $1,000,000, and the annual gift tax exclusion amount is $11,000.
Top Ten Ways To Prepare For Retirement
1. Select a target date you want to retire.
2. Calculate how much money you need to accumulate.
3. Find out about your Social Security benefits.
4. Maximize use of tax-deferred vehicles.(401k’s, IRAs etc.)
5. Ask your employer for matching funds.
6. Don’t touch your savings.
7. Diversify your assets.
8. Seek assistance of a professional.
9. Set goals, now.
10. Do a retirement plan and monitor it on an ongoing basis.