Archives for July 2013

Retirement Finances: Will Your Expenses Drop? Or Just Change?

One of the rules of thumb that has been in existence for a long time, particularly associated with retirement, is the idea that you should plan to need around 75% of your current income in retirement.

This rule has always bugged me. How many of us really expect our expenses to go down in retirement? I always assumed that my expenses in retirement would be about the same — or even rise.

Spending on Different Things

will expenses decrease in retirement When it comes to the old rule of thumb associated with retirement costs, many people cite the fact that homes are likely to be paid off. Debt will be gone (although this is an increasingly unlikely scenario for many people). And since you aren't driving to work every day, the costs associated with transportation, keeping up a professional wardrobe, and spending on lunch and other items are supposed to go down.

While all of this might be true, does it mean that you won't have other spending priorities in retirement? My guess is that you will probably just spend on different things. Perhaps you may no longer have a house payment, but what if you decide to travel during retirement? You may not need to spend on gas to get you to and from work, but you may have a new hobby that costs just as much as your old transportation costs — or maybe even costs more.

The point of the modern retirement is that you have the chance to spend money on things that interest you. The modern retirement (if it can even be called a true retirement) isn't about sitting around on your porch all day, doing nothing. It's about experiencing the things you couldn't do while you held a full-time job. It's about trying new things — and that can take money in many cases. Rather than assuming that you will be able to make it work on 75% of your current income, it can make sense to assume that you will need just as much money, but that you will spend it on different things.

Longevity and Needing More Money

In fact, it might make sense to assume that you will need more money in retirement than you need now. One of the big reasons for that is the fact that we are living longer as humans, and that comes with a host of costs — particularly health care costs. Health care costs continue to rise, and they will probably rise during your retirement. And with people living longer than ever, there is a good chance that you will need some sort of long-term care at some point.

When you start to think about it, it makes sense to plan for higher costs in retirement, rather than planning to spend less. Consider long term care possibilities, and ways to protect your assets (perhaps with long term care insurance). That way, you will have a better chance of keeping up with your desired quality of life during retirement.

What do you think? Do you think it's dangerous to assume that you will only need 75% of your current income during retirement?

Slower Rise For Health Care Costs For 2014?

By Miranda Marquit 2 Comments

I just got my renewal notice for my health insurance policy (my open enrollment happens during the summer). As has happened every year since I began paying for health insurance, my monthly premium is going up.

Thanks to the fact that I have a HSA, my premium is still lower than what it was a few years ago, prior to making the switch. But it's still kind of depressing to see the cost rise each year.

I was interested to see whether or not my premium would increase more than in years past, due to the fact that most of the rest of the provisions under the Patient Protection and Affordable Care Act (PPACA) kick in during 2014.

My premium increase was in line with what it's been the last few years. In fact, rather than increasing by $85 to $90 a month, it's “only” increasing by $80 per month. And that's even with the fact that one of my prescriptions is now completely covered and I pay nothing for it (a huge upgrade from paying a little more than $100 a month for it).

PPACA Results in Slower Rise of Health Care Costs

According to an article on CNN Money, health care costs are projected to rise at a slower pace in 2014 than in 2013. The article points out that double-digit spikes in health care costs were common in the early 2000s. Additionally, the article reports that PwC's Health Research Institute estimates that costs will rise by 6.5% in 2014 — that's lower than the estimated 7.5% increase forecasted for 2013.

There are projections that employer health care costs will increase about 4.5% on average, once the PPACA dust settles. The optimistic version of this is that employers will pass the savings on to their workers in the form of premiums that rise at a slower pace.

Even if the PPACA does slow rising health care costs as projected, the reality is that health care costs are still rising at a faster rate than inflation — and wages certainly can't keep up.

Are Your Health Care Costs Changing?

Of course, averages paint a pretty picture, but how will the PPACA affect you on a more personal level? As always, your individual situation determines how much you will be impacted. In my case, the PPACA hasn't had much of an impact on me at all. I already purchase health insurance on individual basis for my family, and my health care costs remain relatively stable over time, accounting for regular premium increases and inflation related to prescription drug costs.

My health care costs, overall, have gone down, since my most recent premium increase is offset by the fact that I no longer have to pay monthly for a particular prescription. But I know that won't be the case for everyone.

Those who currently don't buy health insurance, and some of those with certain high deductible plans are seeing a big increase as well. Some small businesses might struggle as well, since the tax credits offered to business for offering health care coverage might not completely offset the costs.

How are your health costs changing? Are you in with the average? Or is your individual situation different?

The Best Retirement Might Be…Not Retiring

By Miranda Marquit 5 Comments

Many of us talk about retirement as the reward for decades of hard work. After working so hard for so long, the reward is supposed to be the ability sit around and do nothing — whether it's in the house you've lived in for 20 years or whether it's on a beach somewhere — until you die or a nursing home becomes necessary.

However, the “dream of doing nothing” that Office Space character Peter Gibbons has might not be the ideal retirement after all. Instead, you might be better off working than retreating to your haven and spending the days sitting on your front porch or puttering around in the garden.

According to a recent study by a British think tank, it turns out that you are likely to live longer, and even have a better quality of life, if you keep working in retirement. Without a reason to get in the morning, it seems as though retirement is more of a curse than a blessing. While some of that probably has to do with how much money you need to retire comfortably, it also has to do with the fact that retirement can mean an end to your social life, and even reduce the amount of physical activity you engage in.

working in retirement Quitting might not be the answer if you want a good quality of life during your senior years.

Does That Mean You Have to Stay in a Job You Hate?

Of course, that doesn't mean that you should just stick through with a job that you hate. Other studies indicate that staying in a job you hate is also bad for your health.

Retirement doesn't have to be an all-or-nothing proposition. Instead, consider doing something you love in retirement. You can keep working in retirement, doing something you enjoy.

One of the great things about careful retirement planning is that it gives you the chance to earn enough financial freedom to do the job you want, rather than have to work for survival. If you want good health in retirement, the key is doing something that you enjoy, and that you feel is useful. Do something that will get you out of the house, as well as promote some kind of social interaction and mental challenge.

To me, retirement isn't going to be about suddenly stopping everything and just hanging out. I'll probably write while I'm retired, since this is a career I enjoy. But I'll also (hopefully) have enough saved up that I can enjoy other activities, such as travel and volunteering. Plus, I'll be able to work on writing projects that I'm most interested in, rather than having to take on certain projects just to pay the bills.

Ultimately, working in retirement should be about choice, rather than the need to keep working in order to pay the bills. And no retirement is likely to be a long term success if your quality of life deteriorates soon after you quit your job. Figure out what you will do in retirement, as well as how much money you'll need. A successful retirement involves the emotional and mental aspects, as well as the physical and the financial.

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