Earlier this year Prudential released a study on the “Class of 2012” those people who are retiring in 2012. The results almost broke my heart. Not only do people miscalculate how much income in retirement they will receive, they also misjudge the amount of money they will need…and how long they will need it. At this time, if you are a women who reaches the age of 50 without a major illness, your life expectancy is 92 years. For men over 65, the expectancy is 17.6 more years and for women over 65, it is 20.2 more years. So the good news is that we are living longer than ever before. The bad news is that healthy life expectancy has not kept pace. For those over 65, healthy life expectancy is just 9.9 years for men and 11.5 years for women.
That’s why you need to check the fine print when they release these studies. Healthy life expectancy is part of your wealth. Health problems are just one of the reasons you may actually need more income in retirement than you thought. Of course, there are more pleasant reasons to need more income in retirement. You have time to travel now, and that costs money, especially since gas prices remain high. Or perhaps you want to relocate to a better climate. Relocation to a warmer locale almost always translates to a more expensive area. The cost of living is an important consideration when determining how much income in retirement you will need.
When making your retirement plans, you should also consider the role of inflation. Future costs of goods and services you use are likely to rise. That can eat away at your income in retirement, even if inflation remains low. The low rate of 2% inflation can eat way nearly one-third of your purchasing power over 25 years. That is a big impact on your income in retirement.
So when making your retirement plan, you should include these factors:
- Living longer
- Increased health care costs
- Inflation’s impact on your purchasing power
As a fee-only Certified Financial Planner, I can help you create a retirement plan that takes into account the things you value and the factors that make a solid, reliable plan for income in retirement.