The benefits of retirement planning aren’t always obvious.
But, if you’re worried about retirement, it’s imperative that you know how retirement planning can help you.
Half of Americans believe it’s impossible to accurately plan for expenses in retirement.
Even worse, did you know that 63% of Americans fear running out of money in retirement even more than they fear death?
With this in mind, it’s only natural to be thinking about the benefits of retirement planning in the first place.
The good news is that a handful of retirees are doing a good job living on their retirement savings.
A study from Blackrock looked at retirees two decades into retirement. Across all wealth levels, more than half of all retirees still had most of their pre-retirement savings. That’s certainly good news for people currently retired.
The Benefits of Retirement Planning Are More Important Now, Than Ever Before
Unfortunately, the economic landscape has changed significantly since the Silent Generation retired.
Of the current generation of retirees, roughly half stepped into retirement with a defined benefit retirement plan. This type of pension is a guaranteed monthly income payment for life provided by an employer.
Those nearing retirement? Not so much.
Employers have switched almost unanimously to savings-based retirement plans; just 15% of those born after 1945 will retire with any type of pension at all!
Health care costs further complicate the picture.
A couple retiring this year will spend nearly $300,000 on health care in retirement according to a study by Fidelity.
That’s up 70% from their 2002 figure of just over $200,000. Medicare and prescription drug plan premiums account for about 35% of that figure. The remainder comes from deductibles, copayments, coinsurance, and uncovered expenses.
Four in 10 retirees said their health care expenses were much higher than they expected.
The landscape has changed. So, it’s not surprising that the fear of running out of money in retirement is a top concern. If you are in your 50s or 60s, you have a right to be worried.
The good news is it’s never too late to reap the benefits of retirement planning to achieve financial security.
1. Know how much you need to retire
A recent financial survey showed that 61% of adults have “no idea” how much they’ll need to retire. Estimates range from $500,000 to 25 times one’s annual salary in the year of retirement.
Despite the lack of certainty, however, only one in four survey respondents sought advice from a professional financial advisor.
One of the main benefits of retirement planning is knowing how much savings you need the day you leave work. You’ll also want to know how much you need to save and invest each year to get you there.
But, retirement calculations can be complex and are highly personal.
If you need help, a certified financial planner can assist. He will look at your current assets and savings, income streams after retirement, and projected living expense.
Together, you can develop the best approach to retirement based on your goals and risk tolerance.
2. Peace of Mind
Between one-third and one-half of working-age Americans report anxiety as a result of financial stress. Of that group, nearly 60% are most concerned about their financial future as opposed to current money troubles.
Financial stress robs people of sleep, productivity, and even good health.
A retirement plan helps remove one of the major contributors to financial stress. This can be a big benefit!
When you have a plan for retirement, you’ll have more emotional energy to focus on things that matter most to you.
3. Make smarter decisions
Most financial decisions have long-term impact. But, the more complex your life becomes, the more decisions you have to make. Often those decisions don’t have a black and white answer.
For example, you may want an answer to questions like:
Does it make financial sense to change jobs?
How can I maximize my employer benefits?
When should I take social security?
How can I reduce taxes?
Should I purchase that vacation home?
But the fact is, every pebble causes ripples in your financial pond. The more decisions you have, the more anxiety you may have about your future.
When you know where you are in relation to achieving your goals, you’ll have the information you need to make wise choices. That’s a big benefit to retirement planning today.
4. Reduce your tax burden
Most people don’t mind paying the taxes they actually owe—but no one wants to pay more than she has to.
Tax planning for retirement is a complicated issue: What will your tax bracket be after you retire?
Should you invest in a Roth or traditional IRA, or a combination of both? How will future tax law changes affect your retirement spending?
Planning for tax efficiency is one of the benefits of retirement planning, especially for those approaching retirement age.
The best fee-only financial planners are paid to stay abreast of changes in tax policy. You’ll also receive advice for tax-efficient spending. As a result, you’ll have more money to fund the retirement you envision.
5. Have a unified vision for retirement
There’s a good possibility you and your spouse have very different ideas about what retirement will look like.
You may envision a grandchildren-friendly house with a big yard strategically located between your kids’ homes. On the other hand, your spouse may envision a maintenance-free condo on a golf course in Florida.
Differing opinions between spouses happens more often than you think.
Planning for retirement forces those uncomfortable conversations about where you’ll live and the lifestyle you’d like to have in retirement. Even better, you’ll benefit from an objective outsider who isn’t tied to the emotion of your relationship!
Once you’re in agreement, it’s so much easier to work together to achieve your goals.
6. Prepare for healthcare expenses
It’s a sobering fact that 58% of women and 47% of men will need long-term care.
The average end-of-life stay is about two years and 15% will need five or more years of long-term care. This is according to a study by the AARP.
It’s no surprise that the sale of long-term care insurance is growing exponentially.
Just as with life insurance, long-term care premiums are lower the earlier you buy coverage. Historically, they’ve increased at a smaller amount each year, when you purchase early.
For example, if you buy a policy in your 50s, premiums go up an average of 2% to 4% per year. If you’re in your 60s, the average increase is between 6% and 8% per year.
If a new home is part of your unified vision for retirement, buying at today’s prices will set you up with built-in equity when you’re ready to retire.
We’ve found that home equity can be a great resource for the tail end of retirement. As it turns out, you may end up living in a continuing care retirement community and that can be expensive. The equity in your home can help pay for your future healthcare needs.
When you have a retirement plan in place, you’re positioned to save now on the things you know you’ll want or need in the future.
Preparing for healthcare costs can big an important benefit to planning for retirement.
7. Retire on your own terms
Eight in 10 workers want to retire before age 65. The reality is that fewer than half of them will be financially prepared when they’re ready to quit working.
Here are a number of reasons that retirement could be delayed:
Delayed Social Security eligibility
Increased health care costs
Stock market declines and corrections
Lower levels of savings
All of these obstacles will keep many people in their jobs much longer than they’d like.
Retiring on your own terms is one of the major benefits of retirement planning.
When you know you’re financially prepared, you can leave your job when you’re ready. But, don’t think you have to leave altogether. Many retirees choose to pursue charitable part-time or unpaid work instead.
8. Leave a meaningful legacy
The fact is, everyone leaves a legacy; the question is what kind of legacy you leave behind?
For many people, a life well lived, filled with family, friends, and the financial security to enjoy them is more than enough.
Others want to provide education for their grandchildren or give to a charity such as their church.
The benefits of retirement planning aren’t limited to just your money today. A good plan will also include estate planning. Proper estate planning can help you leave a legacy that has meaning for you and your loved ones.
Retirement planning isn’t just for workers just starting out; it’s especially helpful when you’re ready to re-evaluate your plans as you prepare to retire.
The truth is that great advice can be priceless. You’ve spent most of your life working hard and raising a family. You owe it to yourself to realize the many benefits of retirement planning.
At Covenant Wealth Advisors, we specialize in retirement, tax, and estate planning for those looking to retire within the next 10 years.
We’re happy to review your financial situation and retirement goals to help you develop a retirement plan that ensures you achieve them.
Mark Fonville, CFP®
Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors.
Disclosures: Covenant Wealth Advisors is a registered investment advisor. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions.
This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account.
Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.