We all have a goal to retire comfortably, whether we plan to retire early, at age 65 or continue to work after the average retirement age. Knowing these retirement facts could help you do just that.
#1 Your retirement could be 30 years or longer.
Think about it: If you retire at 65, your retirement could last almost one third of your life. This may mean you shouldn’t go too conservative in your investment approach early in retirement, because if you do, you may not continue to reap the returns you need to sustain your required income for all those decades. Which leads us to…
#2 You’re likely to outlive your retirement savings.
More than half of Americans underestimate how long they’ll live and don’t realize how long their retirement could be. The trouble is, that estimation figures big into how much you save and which investment vehicles you choose. People who underestimate their life expectancy could be at greater risk of outliving financial assets, and experiencing the resulting financial stress.
Talk to your wealth advisor about the best way for you to manage your longevity risk. With the right plan in place, including the right portfolio mix and options for retirement income, you’ll reduce your chances of being overly conservative or overspending.
#3 Social Security amounts to a drop in the bucket.
Some wealth advisors say you should plan to replace 80% of your income in retirement, but you’ll need a much bigger chunk from investment income than you might think. In fact, the average monthly Social Security benefit was just $1,503, hardly enough to cover your needs in retirement.
#4 Long-term care isn’t covered by Medicare or private health insurance.
You may be counting on Medicare or private health insurance to help cover many of your late-in-life medical troubles. But when it comes to long-term care, you need a different approach. Out-of-pocket estimates for long-term care averages around $140,000, and long-term care insurance plans exist to help.
#5 Inflation will erode your savings.
One of the biggest threats to your retirement account balances is inflation. The average yearly inflation rate is 3%, and although it’s been hovering around 2% for the past 20 years, we may see that rate creep up as the economy recovers from the COVID-19 pandemic.
There are ways to help combat inflation, including keeping a certain balance of stocks in your portfolio and using TIPS (Treasury Inflation Protected Securities), whose value and interest payments adjust right along with inflation.
#6 Distributions from traditional 401(k) and traditional IRA accounts are taxed incrementally.
All your hard-saved 401(k) or IRA money isn’t just for you to enjoy. Once you start taking withdrawals, or distributions, you bear the tax burden along with the privilege of accessing those funds. And you’ll be taxed at steadily higher rates for progressively higher income levels. Because a sizable 401(k) or traditional IRA distribution could push your income into another tax bracket, you should consider strategies that help to minimize your tax bill.
How comfortable are you with your current retirement plan? Contact us at Ironwood Wealth Management to make sure your retirement goals and your comprehensive financial plan are aligned.