There is a common misconception among people who have yet to retire that when the time comes for them to stop working, their expenses will be reduced.
“That’s really not true,” says Christopher Hogan, ChFC, CLU, a financial professional at AXA Advisors, LLC.
“The reality is people today will live longer, healthier retirement lives and they will experience more opportunities to do things like travel and take advantage of things they either couldn’t do or didn’t have time to do when they were working,” he says. “The reality is you end up replacing the expenses you had when you were working with expenses you have in retirement.”
The problem is you’re no longer earning a regular paycheck when you retire, so you must rely on whatever funds and accounts you set up to be there for you in retirement.
“The average person won’t account for issues or challenges related to making their retirement income last their entire lives,” Hogan says.
Smart Business spoke with Hogan about how to deal with those challenges and ensure that you do have enough money to support you and your family when you’re done working.
What is the biggest mistake people make in trying to determine how much income they will need?
People fail to account for inflation when they plan for retirement. Inflation is the rising cost of consumer prices over time. A good rule of thumb is to use a 3 percent inflationary rate, which is what the average was from 1926 until 2013.
Where do you begin the process of determining how much income you’ll need?
Identify your fixed annual needs such as housing, food, utilities, etc. and break it down into a budget that accounts for everything including your cable bill, your cellphone bill, your mortgage bill, your property tax bill, etc.
In addition to that, you want to build on top of that the annual or monthly budget for things you are going to do that are going to replace the working hours with playing hours.
Determine the wants you have for things such as travel, spoiling the grandkids and other discretionary items. Most people today will live healthy lives in retirement for an average of 10 to 15 years. They will want to use those years to get their ‘bucket list’ items completed.
When should you begin making plans for retirement?
There’s no right time to start planning for retirement other than today. Everybody should have a written retirement plan with a forecast and an understanding that things will change.
It’s like an athlete with a goal. They develop a plan, they usually write it down and then they try to stay with the plan. By having a written plan, the probability of reaching your goal is far greater than if you don’t have a plan.
What about the possible need for long-term care?
In many cases, it will be an in-home, long-term care need. A person who has a stroke may go through a period of time in a rehabilitation unit and then go back home and still need long-term care as they rehab.
The only real way you can plan for that is by obtaining long-term care insurance, preferably while you’re in your 50s. If you wait too long to address that need, you find that the cost is prohibitive or you no longer qualify for it medically.
Christopher Hogan offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, and offers insurance and annuity products through AXA Network, LLC. Christopher Hogan, AXA Advisors and AXA Network do not offer tax or legal advice. Chris Hogan is unaffiliated with Smart Business. AGE- 105674(07/15)(Exp.07/17)
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