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Five Questions to Answer Before You Retire

Five Questions to Answer Before You Retire

Thursday, 08 March 2018 02:49 PM Current | Bio | Archive

Many Americans look forward to retirement, hoping that they’ll be able to relax, enjoy life, and finally do all the things they weren’t able to do when they were younger. They assume that once they hit 65 they’ll just move right on out of the workplace and into retirement. But before they do that, they need to ask themselves these five questions.

Can I Afford to Retire?

This is the big one. Do you have enough money saved up to enable yourself to retire comfortably? The normal rule of thumb is to be able to have at least 10 to 12 times your annual income saved up, so that you can live on 70-90% of your last annual salary. Let’s say you’re bringing in $80,000 per year, so conventional wisdom would say that you should have $800,000-$960,000 saved up, and you should attempt to live on $56,000-$72,000 per year. But is that enough money?

Remember that inflation is going to slowly raise your cost of living throughout retirement. The average 65-year-old American today can expect to live another 20 years. Inflation is low right now, but let’s assume a long-term inflation rate of 3%. If you stick to that 70 percent of salary lifestyle you’d end up spending a total of $1.5 million over the next 20 years. If you tried to live at 90 percent of your previous salary, you’d spend nearly $2 million.

And if your retirement assets are only growing at a rate of 3%, you’re not gaining any ground against inflation. In fact, you’d run out of money after about 14-15 years. Turning 80 and finding out that you don’t have any money is not what anyone wants to happen to them. You’d need to save anywhere from 35-80% more, 13-22 times your salary, just to come out even by age 85. And if you’re one of the more than 25% of 65-year-old Americans who lives to be 90 or older, you’ll need even more money than that. That means you either need to save a lot more, live on less, or ensure that your investments have an annual return that far outpaces inflation.

Do I Have Debt Hanging Over Me?

Carrying debt into retirement can be stressful, both emotionally and financially. It can eat away at your savings until you’re living hand to mouth, with any bit of income coming in going mostly to pay your debts. With the cost of living increasing every year, more and more Americans are turning to credit cards to pay their bills, running up large balances that continually accrue interest. That can lead to an overwhelming amount of debt at a time when you can least afford it. That is why it is best to pay down as much debt as possible, or get out of debt completely, before you retire.

How Reliant Am I on a Pension or Social Security?

You may be one of the fortunate Americans who still has a pension plan. Or you may be expecting a tidy amount of Social Security benefits to supplement your retirement income. But how realistic are those expectations?

Social Security’s trust fund is projected to run out of money by 2034, and that date could end up being moved up a few years in the near future. After that point, Social Security will only be able to pay 77% of expected benefits, unless Social Security taxes are raised. If you’re already expecting to live off 70-90% of your final salary, can you really afford another 20-25% hit? Congress doesn’t seem to appreciate just how soon that fiscal crisis will hit Social Security, because nothing is being done to prevent that from happening. In all likelihood, you won’t see nearly the amount of Social Security benefits that you had hoped.

If you have a pension, how well-funded is it? It’s no secret that most pension plans in this country are severely underfunded. Pension fund managers severely overestimated the growth rates that their funds would achieve in order to pay out expected benefits to retirees. If you’re part of a public-sector pension plan and your municipality can no longer pay your benefits or otherwise has to declare bankruptcy, you could see your pension benefits slashed severely.

The same goes for private-sector pensions. If the company you worked for isn’t doing so well, it could go out of business and leave you hanging. The Pension Benefit Guarantee Corporation exists to try to recoup as many assets as possible for pension plan participants, but in all likelihood you won’t see the full benefits that you had expected. That’s why it’s more important than ever to save money in your own retirement plan.

Have I Factored in Rising Healthcare Costs?

Healthcare costs can generally be figured to increase at least 5-6% per year, and historically double-digit increases are not unusual. That doesn’t even take into account the rising cost of healthcare for seniors. As you age, expect to spend more and more money on medical care. Are you going to figure that in to how much money you will need each year in retirement? If you neglect to prepare for those rising costs, you may find yourself eating up more and more of your retirement nest egg each year as you visit the doctor, which will leave you in much worse financial shape as you age.

What Will I Do in an Emergency?

The odds of a health or other type of emergency affecting you increases as you age. Have you made plans to be taken care of if you fall ill? Do you have friends and family you can rely on to assist you? What about if your house is damaged in a fire or natural disaster? Renting a motel room or a short-term apartment can get expensive quickly. Again, do you have friends or family who can help you out if this happens?

How about a financial emergency? You may be tempted to keep your money in stock and bond markets to maximize your returns, but what happens in the event of a downturn in financial markets? As investors found out the hard way during the 2008 financial crisis, a stock market crash can decimate savings. Many investors saw 50% or more of their hard-earned retirement assets wiped away in a matter of months. If you’re retired and no longer bringing in a salary, you can’t afford to let that happen to you.

That’s why it’s so important to get your financial house in order and make plans to protect your assets before you retire. Gold can play an important role in doing that. Since the early 1970s gold has risen in price by an average of over 7.5% per year, outgrowing both the Dow Jones and the S&P 500. Gold doesn’t experience the same volatility as stocks and bonds, and its popularity as a safe haven investment and hedge against inflation makes it a great choice for retirees.

With a gold IRA, you can even use existing retirements assets from a 401(k) or IRA account to invest in gold, while still retaining the same tax advantages as a traditional IRA account. So if you’re worried about your retirement savings lasting you through retirement, you owe it to yourself to look into investing in gold today.

Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.

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Many Americans look forward to retirement, hoping that they'll be able to relax, enjoy life, and finally do all the things they weren't able to do when they were younger. They assume that once they hit 65 they'll just move right on out of the workplace and into retirement....
gold, retire
Thursday, 08 March 2018 02:49 PM
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