When you retired, you crossed an invisible line in our society.\u00a0 On one side of that line reside all the workers in this country who support themselves by earning wages.\u00a0 On the other side are those who have stopped working and who will rely on other means to support themselves in the period of life we have come to call \u201cretirement.\u201d\u00a0 Regardless of how long ago you crossed that line, you have probably wondered whether you are living within your means.\u00a0 It\u2019s an important question and financial planning for seniors provides the answer.<\/p>\n
There are several aspects of financial planning for seniors.\u00a0 The general idea is that your resources need to provide enough income to pay for your expenses for as long as you live.\u00a0 There are several significant threats to your financial security in retirement and you need a solid plan to protect yourself against them.<\/p>\n
Consider all of the ways you can create income in retirement.\u00a0 Do you have a defined benefit pension plan from your prior employment?\u00a0 How much Social Security<\/a><\/span><\/strong> will you receive?\u00a0 Will you earn income from part-time work?\u00a0 Do you own property that will generate rental income?\u00a0 How much have you saved in tax-qualified retirement accounts?\u00a0 Do you have additional savings or investments?\u00a0 You need to figure out how much income all of these sources will generate over your lifetime.<\/p>\n Next determine your spending in retirement.\u00a0 What are your core or fixed expenses that will not change much over time?\u00a0 Examples are utilities, property taxes, groceries, and insurances.\u00a0 What are your variable expenses that will vary over time?\u00a0 Examples are travel and vacations, home maintenance, appliances, and replacing vehicles.\u00a0 You need to make certain your income resources are greater than your spending.<\/p>\n <\/p>\n However, financial planning<\/a><\/strong><\/span> for seniors doesn\u2019t end here.\u00a0 We need to think about what can go wrong.\u00a0 There are several threats to your long-term financial security in retirement, and you need a strategy to counter them.<\/p>\n Inflation erodes the purchasing power of your income.\u00a0 Inflation in the US has been relatively muted in the past few decades, averaging 2.45% since 1990 (source Consumer Price Index published by the Bureau of Labor Statistics<\/strong><\/a>).\u00a0 But looking back farther (i.e. 1970-1980), we can see periods when inflation was much higher and, as a result, caused a lot of pain for consumers.\u00a0 Financial planning for seniors must include realistic assumptions for inflation in general and health care (which has a much higher rate of inflation) in particular.\u00a0 You need to plan on things getting more expensive.<\/p>\n You will be required to pay taxes in retirement.\u00a0 The rate will vary depending your tax filing statues (e.g. married, single, etc.), the source(s) of your income, and the total amount of your taxable income.\u00a0 Given the nation\u2019s chronic budget deficits and the massive national debt, you should be prepared for an increase in your federal income taxes.\u00a0 You should also plan for higher state (e.g. income and sales taxes) and local taxes (e.g. property taxes) because all tax jurisdictions seem to be chronically underfunded.<\/p>\n Hopefully, you will have multiple sources of income in retirement.\u00a0 Another aspect of financial planning for seniors involves using tax-efficient distribution strategies to minimize your taxes throughout retirement.\u00a0 You may need to work with a tax professional to do this most effectively.<\/p>\n What will you do if you are unable to care for yourself?\u00a0 If you need care, realize that whether it is delivered in your home, in a day care facility, or in a nursing home, it is very expensive.\u00a0 According to Genworth<\/a><\/span><\/strong>, the national average for home care is $4,290 per month.\u00a0 The average for adult day care is $1,625 per month.\u00a0 The average for a semi-private room in a nursing home is $7,513 per month.\u00a0 The costs on the west coast tend to be higher.<\/p>\n If you have chronic, compromising health conditions, if your family history is marked by relatives needing medical assistance, or if you simply expect to live a very long life, you should consider how you will receive health care and living assistance.\u00a0 Will you earmark some of your resources for care?\u00a0 Will you buy insurance to pay for care?\u00a0 Will you spend down your resources and qualify for government-provided care?\u00a0 Financial planning for seniors must include a plan for your care should you need it someday.<\/p>\nWhat are Your Expenses?<\/b><\/h2>\n
Want to learn more about retirement planning? Contact our team at Springwater Wealth today to learn how we can help you develop a plan for your financial future.<\/span><\/strong><\/a><\/h2>\n
Threats to Retirement Security<\/b><\/h2>\n
Inflation<\/b><\/h3>\n
Taxes<\/b><\/h3>\n
Health Care Assistance<\/b><\/h3>\n
Poor Investment Returns<\/b><\/h3>\n