Early planning for retirement is critical because it typically takes many years to accumulate the necessary funds to live comfortably when you no longer enjoy the advantages of a salary. If you begin your investing early in your working life, it will allow funds to accumulate and grow over the subsequent decades, so that you have substantial resources for navigating your retirement years.
Finding Income Resources
Reaching retirement brings with it some advantages, such as low-cost medical insurance through Medicare and monthly benefits checks from Social Security. However, your Social Security will replace only a small portion of what you made while working. The maximum Social Security benefit in 2012, for a worker who retired at full retirement age, was $2,513 per month, which is $30,156 per year. Even with lowered expenses, living close to the lifestyle you've become accustomed to during your working years will require you to supplement Social Security, while Medicare can still leave you responsible for large medical costs. Planning for retirement by investing in securities and in retirement-focused tools such as employer-based pensions, Individual Retirement Arrangement accounts, which are known as IRAs, and 401(k) plans will give you increased resources to enhance that monthly income.
Quality of Life
Retirement brings a space and time that a working life makes difficult. It's an opportunity to collect experiences and engage in activities you found tricky to manage in the midst of the persistent responsibilities of a busy career. However, enjoying that high quality of life will require significant savings. Savvy and responsible retirement planning enables you to make your retirement years a time to thrive and indulge yourself. Insufficient retirement planning, meanwhile, can force you to scrimp and save and to worry over your resources, making money a restrictive force rather than a freeing one.
As Americans' life expectancy increases to about 78 or 79 years, the importance of providing enough of a financial cushion to support yourself grows more and more important. It's a nice problem to have. However, it can create serious problems for those who only saved enough to last them through a certain age and then find they have several more years left to fund. Some investors make the mistake of only planning to have enough funds to last until the average life expectancy, instead of being careful and planning to live beyond that.
Long-term care refers to regular care for people with a chronic illness or disability, such as through an in-home caregiver, adult day care or an assisted-living facility or nursing home. Approximately 70 percent of Americans over the age of 65 will need some form of long-term care, according to the U.S. Department of Health and Human Services. Medicare only covers medically necessary skilled home health care or nursing facility care. Long-term care insurance is an option, though policies differ on which forms of care they will cover. Incorporating long-term care costs into your retirement savings calculations helps fill gaps in coverage. Costs in 2012, included a national median rate of $3,300 a month for a room in an assisted living facility and $200 a day in a semi-private room at a nursing home.
- Centers for Disease Control and Prevention: Life Expectancy
- Social Security: 2012 Social Security Changes
- Chicago Tribune; Put Long-Term Care in your Retirement Plans
- CNNMoney.com; Do I Really Need My Savings to Last Until I'm 100?
- Social Security: Retirement Planner
- Medicare Handbook: Section 6 - Plan for Long-Term Care
- Genworth Financial: 2012 Long Term Care Survey
- Department of Health and Human Services: National Clearinghouse for Long-Term Care Information
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