As the Baby Boomer generation begins to face retirement, it should make the rest of us sit up and take notice. What are they doing right and what are they doing wrong? Well, if news reports and surveys are any indication, many of them are starting too late. Many are in debt and facing years more of work to achieve financial stability. Here are some tips for how to plan for retirement.
1. Face the stats. The odds are you will live to be in your 80s, so you should plan on funding that lifespan. People tend to underestimate how long they will live and therefore, they aren’t calculating retirement correctly. When you are sitting down to try to come up with your retirement goal, consider that you may have 25 years of living off of your nest egg entirely. Let’s say you retire at 65, work part time until you are 75 and then, you may live to be 100. More and more people are living that long. Can your nest egg last that long? And do you want to leave any money behind? Add that to your figures. too.
2. Face the stats, part 2. With advances in medicine, lifespans are increasing and one of the main reasons is preventative medicine and prescription drugs. Those things cost money. Have you added that to your retirement calculations? The average senior citizen spends 15-20% of their monthly income on prescription medicines. Are you prepared for that outlay? How much are your health insurance premiums and do you have long-term care insurance? Once you turn 60 you should buy it. There is one more expense.
3. Stabilize you monthly expenses now. The good money habits you cultivate now will help you in your golden years. One of the biggest issues facing retiring Baby Boomers is their debt load. Many of them have $20-50k in credit card debt. Many of them do not own their home. Those two factors combined mean that those folks will be working an extra 10-15 years just to get out from under the debt and begin to save some money. If you make the effort and get debt free now, you are ahead of the game. Getting to a place where you can forecast your monthly bills, and have a cushion of a few month’s expenses in place will allow you to weather the ups and downs of modern living.
4. Use the tools available to you. 401k, IRA and Roth IRAs are available to you. Use them! While most people do participate in their companies’ 401k plan, most woefully underfund it. You can put 10% of your wages (or $16,500 whichever is lower) into the account. If you are 50+, you can add an additional $5,500 on top. They call this the “catch up” provision. If you leave your company (as the average worker does 2.5 times int heir working life) remember to take advantage of the 401k rules that allow a rollover. A 401k rollover-IRA or Roth is a great idea. If nothing else, roll it to your new 401k plan. Just keep every dollar working for you. That is the key. If you can afford to fund an IRA and a 401k that is ideal.
By following these tips you will be well on your way to creating a rock solid foundation for your retirement. Planning for the future now is smart and if you are in your twenties or early thirties, time is on your side, my friend. Live well; live smart.
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