Celebrated astronaut, author and speaker Chris Hadfield – the first Canadian to walk in space – likes to begin his talks by asking three questions: “What's the scariest thing you've ever done? What's the most dangerous thing that you've ever done? And why did you do it?” He then goes on to describe how he overcame many of his concerns about space travel by visualizing – and preparing for – the various circumstances he might face during his mission, including what could go wrong.
So, what do you envision for your own retirement? Where will you live? How will you spend your free time? Do you plan to work part-time to some extent? Do you anticipate that you may need to provide care for an elderly parent or perhaps an adult child during retirement? What could possibly go wrong that could endanger your own mission in retirement?
Many of the risks you will likely encounter in retirement center around three questions: How long do you plan to live? How much income will you need? How long do you plan to work?
How long do you plan to live?
The Social Security Administration estimates that, once a woman reaches age 65, she has a 50 percent chance of living past the age of 90. A man, once he is 65, has a 50 percent chance of living beyond age 87. For a couple, there’s a 50 percent chance that one spouse will live beyond age 94 and a 10 percent chance of living beyond 100.
Did you know there are over 2 million individuals over the age of 90 and over 53,000 over the age of 100 who are currently receiving Social Security benefits?
All other goals notwithstanding, most people deeply want to preserve their own dignity throughout retirement. They do not want to run out money prematurely and lean on others for support.
How much income will you need?
This puts a premium on knowing your number – that is, the amount of income you’ll need to fund the things you’ll need and want throughout your retirement, which could last 30 years or so. Most financial professionals recommend that you save and invest enough so that you can cover at least 80 percent of your current household income.
Start by going back to the vision I mentioned earlier. What does living in retirement look like for you?
Next, take inventory of your basic needs and wants to include in your retirement budget. Basic needs generally include out-of-pocket medical expenses, (e.g., Medicare premiums), utilities, any mortgage payments, groceries, etc. The items in the wants category include discretionary items like travel, season football tickets, eating out, etc.
Finally, examine how the costs for your basic needs and wants stack up against your sources of income, such as a Social Security benefit, any pension benefit, workplace retirement accounts, IRAs, etc.
For a deeper dive into the retirement income calculations, check out this calculator from the Department of Labor and this workbook from the Financial Planning Association.
How long do you plan to work?
In its 2016 Retirement Confidence Survey, the Employee Benefit Research Institute found that 67 percent of American workers plan to work to some extent during their retirement years; yet, only 27 percent of retirees actually reported work of any kind.
There are multiple reasons for this disparity – from health concerns to involuntary changes in work circumstance, all of which are beyond the grasp of complete control.
If you have job now, though, you have direct control over such choices as how much you contribute to your workplace retirement account, your investment allocation in your account, and how this resource fits within your overall financial picture. Did you know that small changes can make a significant impact over time? For example, at 211 degrees water is hot; yet, as authors Sam Parker and Mac Anderson mention in their book, 212◦: The Extra Degree, just one small degree higher creates boiling water. And boiling water creates steam – power than can drive a locomotive great distances!
This is merely a conversation starter, of course. Reach out to a local CFP® professional today to discuss your own financial picture in broader detail.