I have been helping couples and successful individuals plan for an abundant retirement for over 25 years. I am here to tell you that 99% of them didn't have a clue about what their monthly budget was when we met.
Knowing how much money you are spending on "fixed" costs like utilities, car payments, mortgage or rent is crucial. to save a d You MUST know what the fixed costs are if you want to be able to save a dime for later. According to the Government Accounting Office (GAO) about 29% of households age 55 and older have neither retirement savings nor a pension. That's about a million people with no plan and no money. Who is going to pay for their retirement lifestyle? If you think it's the government, think again. Where does the government get their money? From those of us who do work and pay taxes - that's where. Government risk (rising tax rates) is one of the BIG unknowns over a 30+ year retirement.
I'm not here to make a social comment, I'm here to encourage you to get a handle on what you spend a month and then figure out what it will cost you in retirement. And don't be fooled by the government CPI numbers that tell us there is no inflation. Bah Humbug! Have you shopped for milk or bread or meat lately? How much does it cost to fill up your tank these days?
Let's look back 20 years to 1996 to put this into perspective: Average Cost of new house $118,200.00 Average Income per year $36,300.00 Average Monthly Rent $554.00 Cost of a gallon of Gas $1.22 US Postage Stamp 32 cents Average cost of new car $16,300.00
If your budget is $5000 per month today and you plan to retire in just 5 more years, you will need to add at least $500 per month to that budget. If it's 10 years away, add add another $1000 per month to the projection.
Another of the "unknown" costs in retirement is health care. Many of my clients plan to retire before age 65 but they have no clue as to how much health care insurance will cost them until they can access Medicare at age 65. Those 3 years of coverage can be about $1000 per month or $36,000 just for the coverage - not including deductibles and co-pays. So, if you plan to retire at age 62, figure it will cost you another $40,000 to cover health insurance to age 65.
Medicare means tests the premium you will pay based on income. In 2016 Part "B" premium cost is $121.80 per month. In 2017 it will be $134.00 per month. If you are single and earn over $85,000 or are a couple and earn over $170,000 it is $171.50 and goes up to $389.80 based on income. That is just the Part "B" cost and then you have to add a supplemental plan to cover what Medicare does not pay. If you choose a "Medigap" plan that allows you the freedom to see any doctor in any state, you will also have to choose a "D" plan to cover prescriptions. OK, you don't take any medications. You sitll have to buy a "D" plan or pay a penalty for life.
Working with an experienced planner who has knowledge of the "hidden costs" is a critical component for any successful retirement. We have now had 8 years of gains (with a lot of ups and downs) in the stock market but we had 10 years of zero gain prior to that. What will happen to your budget when you start taking money from savings to supplement your income and the market has one or more down years? Having a "fixed income" strategy can add stability, peace of mind and more money to spend.
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