Like many Americans, you may have put money into a 401(k), 403b, Roth IRA, or some other investment vehicle with the hope of one day enjoying your retirement. But just saving money for a later date isn't enough. Determining whether or not your plan will allow you a comfortable retirement requires a critical look at several important variables.
Know Your Ideal Retirement
Does your ideal retirement life look a lot like the one you have now? Or would you want to do more of the things you may have put off for years, like traveling? Or maybe you crave the idea of an earlier retirement even at the expense of a lower standard of living. Your anticipated retirement lifestyle is a critical component in answering the "How much do I need to save?" question.
Consider Life Expectancy
It's important to select a realistic life expectancy based upon gender, age, and family history. You will want to be conservative on the estimated years you will spend in retirement. This is because no one knows for sure how long he or she will live, and it's much better for your money to outlast you than for you to outlive your money. With life expectancies constantly increasing, it's possible that you will spend more years in retirement than you will be working.
Account for Rising Costs
The government's official measure of inflation, the Consumer Price Index, shows low to moderate inflation now and going forward. But if you ask a current retiree, they will give you a much different story. Retirees spend a large portion of their income on food, energy, and health care.
Health Care Considerations
Health problems and health care premiums increase with age with industry experts predict that medical costs will rise around 15 percent annually.
The Wall Street Journal states, “A couple turning 65 has a 75-percent chance that one of them will need long-term care.” At an average monthly cost of a nursing home in Ohio running $6,000 per month, planning ahead for this reality is a very important aspect of any successful retirement plan.
Determine Retirement Date
Assess your current financial position and consider retiring later than previously expected, or taking on a part-time job if needed, the longer you work, the more time you will have to continue saving for retirement.
Find out when you will be eligible to start receiving your various retirement income sources like pension, social security, and retirement account withdrawals.