Retirement plans has changed and not in a good way. Many baby boomers are facing a unique and challenging set of retirement concerns. Financial planning for retirement annuity is becoming more and more difficult due to inflation, risky investments, and the possibility of outliving your assets. So what do you need to consider to be prepared for this "New Retirement"?
A retiree has already beaten the odds of a general life expectancy; they have made it to the age of 65 through accidents, illness, stress, and raising a family. Therefore, as they retire people need to be looking at the average longevity, which is basically a question of how much longer will you live after making it to age 65. In other words, the average lifetime expectancy of about 82 years really means nothing when it comes to retirement plans, health, heredity and life stresses are what are figured into the average longevity.
Excess Withdrawal Risk
The rate that you withdraw your savings once you retire will affect how long your money will last. Until recently, retirees held the opinion that 7 or 8% withdrawals were sustainable due to rising stock prices. With the change in the stock marked lately, many have found that to be a mistake in judgment. The more you withdraw, the less you will have to live on, and with stock dropping you may be losing some of your retirement money before you even begin drawing on it.
The standard definition of inflation is that it is the long-term tendency of money to lose purchasing power. Essentially wages stay the same and prices go up. This can have a very negative impact on your retirement savings. As well as increasing the cost of your day-to-day living, inflation also wears down the value of your retirement assets. It is very important when planning your retirement annuity to make sure that your investment annuities outpace inflation.
Health Care Costs
With longer life spans and higher medical costs, Medicare going down the drain and less employer coverage health care expenses is a critical matter for retirees to address. Experts suggest that retirees set aside a fund just for medical expenses, including co-pays, deductibles, and supplemental insurance for anything not covered by Medicare. This may be particularly important if you do not have employer coverage. This is just addressing normal health care, retirees should also set aside money for long-term care, because it has been estimated that 50% of the people who are age 65 and over will be admitted to a nursing home at some point before death.
Social Security Benefits Commencement
With the longer life span and longevity risk today, many people are choosing not to begin their social security benefits at age 62 or 65. Delaying the commencement of benefits past the minimum age and instead opting in when you reach the age when you can receive full retirement benefits may be something to consider as this can raise your benefits significantly.
All of these challenges need to be addressed and financially prepared for before retiring.