It is not unusual for people, from the time they start working, to have an age in mind at which they would like to retire. As the years go by and they begin to get closer to the age they have been dreaming about, some people take the time to plan (either on their own or with the help of a professional) to ensure they will have the financial resources to stick to that age or adjust their plan if needed.
Unfortunately, many people do not plan. Basically, they jump into the retirement pool without knowing if there is enough water in it. Sometimes it works out okay, but it can also result in a less desirable lifestyle (or potentially a much worse situation) during retirement.
Here are five reasons why you should have a retirement income plan:
2. You may live longer than you think - While average life expectancy from birth is about 74 (males) and 79 (females), for individuals who reach age 65 it is 81 and 84 for males and females, respectively. But these are averages and 50% of people are likely to live longer. Recent studies have shown that more people are now living well into their 90's. Check out the Actuaries Longevity Illustrator website, longevityillustrator.org, to get an idea of how long you may live.
3. Your future expenses may be higher than you expect:
- Inflation will continually increase the cost of many goods and services and some expenses such as medical care historically increase at a higher-than-average rate.
- You may spend more on discretionary lifestyle expenses.
- You may incur higher than expected out-of-pocket healthcare costs. Even if you are of average health or better, original Medicare (Part A, B, D) with a Medigap policy, and Medicare Advantage Plans do not cover everything (e.g., there are deductibles, co-payments, and non-covered costs for such needs as dental, vision, and hearing).
- You are likely to incur long term care expenses in your elder years. Over 50% of people will incur home or facility-based long term care expenses. While the average need is about 3 years, you never know what your situation will be. Alzheimer's or Dementia can result in the need for custodial care for many years. Paradoxically, people with above average health who live long lives are the ones more likely to incur higher long term care costs.