Don’t Go Broke
By BILL SPANIEL
California Society Of CPAs
Will you be able to live the life you want after you quit working? Running out of money in retirement was the top financial concern among financial planning clients, according to a survey of CPA financial planners conducted by the American Institute of CPAs (AICPA).
A related topic – maintaining current lifestyle and spending habits – came in second.
Whether retirement is right around the corner or decades ahead of you, it’s smart to have a financial plan that will ensure you have the funds you need when you’re ready. The California Society of CPAs (CalCPA.org) offers valuable advice to help you reach your retirement goals.
Get the Right Investment Philosophy
If you take too many risks investing your retirement savings, you may lose some or all of your nest egg. If you’re too careful, however, you could miss out on growth opportunities that could increase your savings. The right investment choices for you will depend on a variety of factors, including your own risk tolerance. Your CPA can help you understand your options and provide insights that will help you make the best decisions for your needs.
Prepare for a Long Life
Don’t underestimate how long you will need to rely on your retirement funds. As a general rule, it’s best to be optimistic about your life expectancy so that you’re sure to have the funds you need to live a long and happy life. According to Social Security Administration data, men who are 65 today can expect to live to around age 84.3, while women who are 65 are anticipated to live to 86.6. In addition, one in four 65-year-olds today will live past age 90, and one in ten will live beyond age 95. Of course, your own health, family medical history and other factors will have an impact, but these statistics can give you a general sense of the amount of time you will need your retirement savings to last once you stop getting a regular paycheck.
Get the Whole Picture on Income
Have you considered what your retirement budget should look like? Only 48 percent of workers or their spouses have tried to figure out how much they’ll need to live comfortably in retirement, a survey by the Employee Benefit Research Institute found. Begin calculating your estimates by taking a realistic look at how much income you can expect. In addition to your savings, include any pensions you’ll receive, part-time employment income you may have in retirement and Social Security or other similar benefits.
Anticipate Your Needs
Now turn to your costs. Some expenses may decline in retirement if, for example, you downsize to a less expensive home or move to an area with lower taxes. If you’re not working, you may also spend less on clothing and commuting, although other transportation costs could rise if you move far from your relatives and make frequent trips to visit them. Keep in mind that there’s one cost that is likely to go up, however: health care. How much will you have to pay for adequate medical insurance in retirement? And will it cover the unexpected health problems that can occur with aging? Even those covered by Medicare should budget for out-of-pocket expenses and other costs. An average 65-year-old retiring couple who have Medicare but no employer-provided insurance is expected to need an average of $260,000 for retirement health care costs, based on Fidelity’s Retiree Health Care Cost Estimate. Be sure that your savings estimates anticipate possible added insurance and out-of-pocket medical costs.
Consult Your CPA
Every day, CPAs help their clients tackle a variety of financial issues, including retirement planning. You can turn to your local CPA with all your financial questions.
The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.