Misconceptions About Retirement Planning•My expenses will decrease when I retire.•My retirement will only last 15 years.•Social Security & my pension will pay for my basic living expenses.•My pension benefits will increase to keep pace with inflation.18-2
Misconceptions About Retirement Planning•My employers health insurance plan and Medicare will cover my medical expenses.•There’s plenty of time for me to start saving for retirement.•Saving just a little bit won’t help.18-3(continued)
The Importance of Starting Early•To take advantage of thetime value of money.If from age 25 to 65 you invest $300 a month (9%), at age 65 you’ll have a nest egg of $1.4 million. Wait ten years until age 35 to start and you’ll have about $550,000 at age 65.Wait twenty years until age 45 and you’ll have only $201,000 at age 65.See Exhibit 18-11.18-4
Why Think AboutRetirement Planning Now?•People are spending more years (16-25) in retirement. •You don’t want to be bored, lonely and broke. Start planning early.•A private pension and Social Security are often insufficient to cover the cost of living.•Inflation may diminish the purchasing power of your retirement savings.18-5
Review Your Assets for Retirement•Housing.If owned, probably your biggest single asset.If large equity, a reverse annuity mortgage could provide additional retirement income.You could sell your home, buy a less expensive one, and invest the difference.18-6
Review Your Assets for Retirement•Life insurance cash value can be converted into an annuity.•Review investments, such as stocks & bonds. Consider taking the income from them.•Retirement assets are affected by divorce.Pension benefits are considered a marital asset to be divided, depending on the length of the marriage.There are tax implications of the divorce settlement.18-7(continued)
Estimating Your Retirement Living Expenses•Spending patterns, where & how you live will probably change.•Some expenses may go down or stop, such as 401(k) retirement fund contributions.Work expenses - less for gas, lunches out.Clothing expenses - fewer and more casual.Housing expenses - house payment may stop if your house is paid off, but taxes, insurance may go up.Federal income taxes will probably be lower.18-8
Estimating Retirement Living Expenses•Other expenses may go up.Life and health insurance unless your employer continues to pay them.Medical expenses increase with age.Expenses for leisure activities may go up.Gifts and contributions may increase.