Retirement Essentials – Financial Literacy Tip

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Retirement essentials are those things that we cannot ignore if we plan on enjoying our golden years. Of course you won’t learn everything you need for a successful retirement in this one video, but it will be a good introduction into the subject matter.

Where Will Your Income Come From?

How are you going to pay for your everyday living expenses once you retire? What about those vacations to visit family or the extra shopping or golf that takes up the time you used to spend working?

For some people – some being the key phrase – they can still rely on a pension. That along with Social Security makes up most of the money they used to earn and retirement planning is relatively simple. However, for most of us a pension just isn’t a reality anymore. We must plan on saving enough in retirement, savings and brokerage accounts so that we can create an income stream that will last throughout retirement.

Finally, it is important to mention that we can’t just rely on Social Security in retirement, that will only replace a fraction of our working incomes.

You Will Have Medical and Other Expenses

Almost as important as what you earn is how much you spend in retirement. The better we can manage our expenses, as in limit them, the less likely we are to run out of funds at the later stages of our lives.

Health care is an expense that is easy to underestimate because people incorrectly believe it is free once we turn 65. While Medicare Part A will cover hospital and some other medical costs after a deductible is met, the majority of our health care needs including doctors’ visits and procedures, prescriptions, hearing aids and dental care are not covered. We must purchase Medicare Part B and D along with a Medicare Supplement plan to cover the 20% of Part B costs not covered under Medicare.

There is also the option of purchasing a Medicare Advantage plan that would cover all of the above but either way it is going to cost us a good chuck of money every month. I say to be safe assume $500 per person per month.

Accounting for the Inflation Pinch

Finally, along with managing income and expenses we must also be aware of the silent killer in retirement planning, inflation.

Inflation is the loss of purchasing power over time, while currently the rate of inflation is around 2%, retirees feel the pinch more because medical expense inflation runs much higher at 5%-6%. What do most retirees spend the majority of their funds on in retirement? Medical costs of course.

The only way to combat inflation is to outpace it with investment returns greater than the rate of inflation. To do this we must take intelligent risk in a well-diversified portfolio, making sure we don’t overweight risky assets that could create large losses at the least opportune time.

While this planning is complicated and stressful, having a proper plan in place can improve the likelihood of a successful and enjoyable retirement.

If you aren’t currently working with a CERTIFIED FINANCIAL PLANNER™ Practitioner you can learn more about my practice HERE or you can find other CFP® Practitioners HERE.

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Charles Weeks

Charles Weeks

All stories by: Charles Weeks

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