by Ken Vincent, Featured Contributor
OKAY, SO YOU HAVE reached the age of change. The kids are out of college, and hopefully out of your basement. If so, the odds are they are also out of town. So your life is changing and you are now beginning to focus on that golden age of retirement. So what is needed? Some things are nice, like supportive friends and family, good health, etc. But, only two are essential.
First of course is money. Recent statistics say that the average household in that age group has a net worth, exclusive of home equity, if any, of some $45,000. Well that clearly isn’t going to cut it, so how much do you need, and how will you get it?
How much is a moving target depending on many factors. But, for starters you can trash the concept pushed by many economists and financial planners that you can maintain your current life style on 80% of what you currently spend. I’ve been retired for a long time and it isn’t true. Yes, you will save the money spent on work clothing and commuting to work and eating lunch out. That however is more than offset by higher medical costs, travel to see your kids, and multiple other factors.
What you will need depends on:
Your preferred life style and what changes to that, if any, that you are willing to make;
Where you live. Obviously living in high cost areas, in or near large cities, and states with high tax rates are a factor;
The rate of inflation;
Whether or not you intend to downsize your home;
The age of your cars and the costs to insure and maintain them;
Your hobbies, as some are more expensive than others;
Whether or not your home is paid for, or will be, and the longer term costs of insuring and maintaining it.
The real probability that you will live through one or more severe recessions; and
Your willingness and ability to get rid of all other debt including cc and car financing.
The financial gurus also suggest that you can spend 4-5% of your retirement nest egg without running out of money. Don’t count on it. If earning capacity stays at current 1% or less for extended periods of time you could be in trouble following that advice.
Planning to work part or full time after 65? Don’t rely on that. Human bodies have a unhappy tendency to begin wearing out in your 60s or earlier. Working past an arbitrary age shouldn’t be counted on.
In any case there are two factors that you can take to the bank, other than money. One is that the cost of living, and therefore the cost of maintaining your life style, is likely to nearly double by the time you retire and again while you are in retirement. The second is that SS, if it even exists, won’t cover more than 25% of your needs.
If you have a company or government retirement plan you should consider those as suspect too. If you are planning or some reliance on federal subsidy programs like housing or food stamps keep in mind that those programs are simply not sustainable in their present forms by our bankrupt government.
Now, be of good cheer in spite of the above. Developing net worth is pretty simple in concept and only depends on two factors. First is to consistently spend less than your take home pay. Second, is to keep your money working as hard as you do.
Now we get to the second “need” and I’ve seen many retirees fail in this.
You need a new identity. I don’t mean change your name and go into hiding. What I mean is that you will have 40-80 hours a week to be a person other than who you have been. If your profession has become “who you are” then you need to reinvent yourself. You are no longer that person, so who will you be? A writer, a wood worker, a fisherman, a volunteer at a charity? You need one or more interests or hobbies that can redefine you. Without that your retirement will not be happy, money notwithstanding.