This article was written by Kate Furlong for Manilla.com.
The thought of retirement can bring excitement and relief, but for many people, it can be unknown territory and can conjure up a tremendous amount of anxiety, stress and uncertainty, hindering their ability to properly prepare and actually look forward to the future.
When you're working in your 20s, 30s, 40s and 50s, you have an idea of what you need to pay for: after-school activities for your kids, daily lunch out, groceries, your work wardrobe, vacation -- you get the idea. It's easy to plan and budget for these things in the present, because you know how much you have coming in and how much is going out.But when it comes to your post-work life, things can change, and it requires diligent planning to ensure you're in good shape financially during that time. "A good place to start is to take a thorough look at your expenses," said Crystal Kolcz, Vice President and Area Investment Manager for Fifth Third Securities. "Which of these expenses will go away or be reduced when you retire? Are there additional expenses that you envision that you don't currently have today?" Here are some other questions Kolcz suggests you ask yourself:
- Will you live in the same house, or downsize?
- Do you plan to travel more? Or work part-time?
- What about long-term care or nursing care expenses? Do you have a plan for these as well? Often these expenses can have a significant impact on your retirement nest egg.
Here are some costs you should be thinking about as part of your retirement planning so that you don't find yourself ill prepared.
Housing is typically a cost that gets downsized in retirement, but that's not true for all people. Even if you do move to a smaller home or pay off your mortgage, you'll still be responsible for property taxes and/or homeowner fees (if you live in a condo or retirement community). Those could increase more quickly than you anticipate so you'll want to plan to have a cushion in your savings to cover them.
Increased leisure activities
Most people's retirement dream consists of spending more time with family and friends and doing things they never had the time to do when they were working, whether that be golfing, traveling, visiting grandchildren or meeting old friends over a meal or coffee. While this is no doubt a great time to be doing all of those things, these leisure pursuits also cost money and you might find yourself spending more on dining out and travel than you ever did while working. That said, be sure to factor in plenty of room in your budget so that you end up with both the time and the money to enjoy these activities.
Long-term care and medical expenses
Unfortunately, it can be very difficult to determine how much you might need to save for future medical expenses because it's impossible to predict longevity, health needs and government changes to medical programs. You may also want to purchase long-term care insurance, which can help cover expenses for home care or nursing services that are not covered by health insurance or Medicare and Medicaid. That said, not only is saving enough to cover these costs a good way to sleep more easily at night, it's also essential that you eat right and exercise in order to keep yourself as healthy as possible.
Take the time to sit down and go through your retirement accounts, perhaps with a financial planner or accountant whom you trust, and figure out exactly what accounts you have, approximately how much money you'll need each year, and what your expected tax strategy is going to be. Depending on how you access the money in your accounts, as well as how your financial situation varies each year (e.g., deductions, house sales, Required Minimum Distributions), your tax picture could look very different in retirement. Because you want to make sure that you're keeping your hard-earned money working for you as much as you can, meeting with a tax expert to keep your taxes to a minimum is well worth it.
Once you determine how your current expenses are going to change during your retirement years, you can start to understand how much you'll really need to save. Leverage online retirement calculators so that you can easily look at your goals and learn how much time it's going to take to meet them, says Linda Descano, President and CEO of Citi's Women & Co. She likes calculators from Choose to Save and AARP, but says that your bank likely offers one, too.
Plus, now that you know what you're saving for, plan ahead. Both Descano and Kolcz agree that if you're employer offers a 401(k) or other employer-based retirement place, it's essential to contribute at least the minimum of what the company will match.
Kate Furlong is a financial contributor to The Manilla Folder at Manilla.com, the leading, free and secure service that helps you simplify and organize your daily life. Using just one password, Manilla lets you manage your finances, utilities, daily deals, travel and rewards programs, Netflix and magazine subscriptions, and more -- all through Manilla.com or the top-rated iOS and mobile apps.
Some retirement communities have lowered the age-admission bar to 50. But therein lies the rub: Just because they let 50-year-olds in, doesn't mean everyone who lives there is 50. Do you really want to be the only 50 year old in a community where most people are in their 80s? A retirement community can be a little evasive when you ask about the age of residents, in part because it's constantly changing. The average age of residents tends to rise as the community matures, so while the average age of new buyers might be on the young side, you want to be sure you know the average age of all the residents who live there. It's an important distinction. One surefire way to evaluate who your neighbors will be is to check out who the recreational programs cater to. Is it heavy with clubs for marathoners, tennis players and Pilates classes? Or is loaded with offerings like knitting, Mahjong and bridge?
People come to a retirement community expecting to find a built-in circle of friends with similar interests. It's flawed thinking. Just because two people are the same age doesn't mean they like the same things. The solution is to find people "with the same major" -- people interested in the same things as you are. This thinking has fueled what is known as affinity retirement communities -- places developed around a specific interest. There are some retirement communities for artists -- like California's Burbank Senior Artists Colony, a rental community with opportunities to engage in visual arts, theater and writing. Or a place based around a specific occupation, like Nalcrest, a community about 70 miles east of Tampa, Florida for retired mail carriers where, no surprise here, no dogs are allowed.
For many, retirement community living starts to look more appealing when they find themselves spouse-less. Whether it be through death or divorce, the prospect of flying solo after decades of having a partner is often what drives people to consider living in an age-restricted community. But the odds of winning the remarriage jackpot are probably better in Vegas than in a retirement village. Experts suggest that if marriage is your goal, you should stay active, pursue your own interests and look beyond the retirement gates for a date.
Studies have shown that active people are happier and healthier. With this in mind, you will want to pick a retirement community that keeps you engaged. One thing to consider is a community in or near a college. Colleges and universities frequently let seniors audit classes for free. College campuses also have many free and low-cost cultural offerings -- concerts, art shows, visiting authors. Retirement communities tend to be built out in deserts or on the outskirts of town where land is cheaper. It may be worth paying a premium for locations closer to the things that will keep you happiest -- and that includes being near old friends and family.
While some retirement communities have swing sets and little playgrounds for visiting grandkids, others cap the number of days that minors can spend the night. The idea is that they don't want under-aged residents moving in on a permanent basis. This kind of policy may feel draconian to those who cherish every hour with their grandkids and want the little ones over as much as possible. It also might preclude your adult kids from returning to the nest if they can't find jobs. It's best to check the community's policy about visitors who are younger than the minimum age requirement and make sure you are in agreement before you commit to living there.
Retirement is all about living on a fixed income, right? You know what's coming in each month and it's important to know what's going out. Make sure you know what's included in your monthly homeowners association dues. While "use of the clubhouse" may be included, morning yoga classes may be extra. Front Porch, one of California's largest not-for-profit providers of senior living communities, lists this as one of the top questions to ask. The devil is in the details, after all.
While your immediate concern may be whether you will be able to maintain an active lifestyle, some thought needs to be given to whether this is a home in which you can age in place. Front Porch suggests prospective residents asK: Will I be able to get around to appointments and run your errands if I can no longer drive? What kind of emergency response systems do you have? While it's hard to envision looking that far down the road, it gets back to the not-trusting-anyone-older-than-30 idea: The day will come sooner than you expect when you might appreciate a community bus to the supermarket or a dining room in which to take your meals.
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