Master Your Card

This is going just a little off topic from the natural order of this blog, but I hope that you will indulge me. Given the state of the economy and the fact that EVERYTHING is going up in price, I felt it was a prudent time to address this situation. Plus, I just had a conversation with the most infuriating person in my life about why he doesn’t have enough for retirement….*groan*

So, let’s talk some specific numbers here. Realistically, how much do you think you’ll need in retirement? I had a conversation with a couple nearing their golden years the other day. Naturally we talked about retirement and they told me their financial advisor told them they would only need 70% of their current income because costs would decrease once they hit retirement. I told them to fire their advisor.

First of all, it is a myth that your expenses will decrease in retirement unless you do something drastic to make that happen. No longer working the 9-5 doesn’t magically make your electric bill go down. In fact, because you’re home all day, it’s likely to go up. People planning for retirement should ALWAYS plan for more than what they think they need. And if you still have credit card debt when you hit retirement age, guess what? That still has to be paid back. There is no magic pass that says you get out of debt just because you retired. Wouldn’t that be nice, though?

Back to specific numbers. Let’s take a look at how much it will cost you to eat in your retirement years:

Here’s to hoping you are one-half of a couple in retirement and both of you have got to eat. Most people like to eat three meals a day – I know some don’t, but in retirement, why not? The average meal comes to something like $8, but if you live in an expensive part of the country, you may want to calculate a higher number. Now, I like to eat everyday and I’m guessing most other people do, as well. So we’re talking 7 days a week and 365 days a year here. And, just for giggles, let’s say you plan to enjoy your golden years for at least 20 years. Now we have an equation….

2 people x 3 meals a day x $8 per meal x 365 days a year x 20 years = $350,400

Take a good, long look at that number. Now take a look at your 401(k) balance. Will you be able to eat once you reach retirement? Here’s something else to consider – this number doesn’t include anything but food. It doesn’t account for medical bills, living expenses, housing expenses, or any activities you dreamed of doing once you made it to retirement. And, just for good measure, let me remind you that this doesn’t take into account inflation either.

As of now, experts recommend that senior citizens have a minimum $220,000 saved for medical expenses alone to cover what Medicare won’t. Ideally, that number should be closer to $500,000 as expenses are expected to increase every year. So, with medical expenses, that puts you at a little under $3 million and we haven’t touched living expenses or entertainment. Remember those trips you wanted to take? Well, you can forget about it if you’re not fully prepared for retirement. The other option is to keep working all your life and rely on social security, which gets smaller every year and may not be around for much longer.

I think you can see why it’s important to adequately prepare for retirement. You may think these numbers sound extreme, but the reality is that they’re probably underestimated. Living on a fixed income is hard. You probably did it for years while you worked, living pay check to pay check. But you can’t afford to do that in retirement. I can’t stress enough how important it is to evaluate where you are with your retirement goals. You should be talking to your advisor at least once a year, preferably twice a year, to go over your goals and where you are. If you’re just contributing to a 401(k), then you should consider other options.

And don’t put off planning just because you think you have plenty of time. Start now! Couples in their 40s have to work twice as hard as couples in their 20s. The earlier you start the easier it is to reach your goals and live comfortably in your retirement.

So, are you ready?