Where We Go From Here
IDENTIFY YOUR SPENDING GOALS
So how do these four components of wealth – assets , income , liabilities and expenses – shape your own financial picture ? What can you do now so that when it ’ s time to retire , you can do so with confidence ? A good place to start is by looking at your current spending – after all , what you spend in retirement will to some degree be informed by what you spend today .
While retirement will commonly have some bucket-list items , like traveling or starting a second career , many of your day-today activities will resemble the types of things you ’ re doing now . Your favorite pastimes now will likely still be a part of your life in retirement , and if you like going out to eat for Sunday brunch , you ’ ll likely still enjoy doing that down the road . Going through your monthly statements won ’ t tell the whole story , but it will help your retirement picture come into focus .
But perhaps the most important thing to understand about retirement is that your ideal retirement is unique to you . Moving to a warm state and golfing three times per week isn ’ t your only choice – your retirement might involve travel , moving somewhere close to the kids or taking up new hobbies . It might even involve not retiring at all – many people choose this time to start a second career , one that lets them explore activities that are more meaningful to them .
As you think about your options , ask yourself what would make you content . Start with the activities and lifestyle that you would find personally enriching and build around them . Other considerations might include :
• Where do you want to live ? Do you want to be close to family and friends ? What kind of climate most appeals to you ? It ’ s worth giving some thought to taxes and cost of living in different locales , but you don ’ t want to trade your happiness for a lower tax rate .
• What healthcare needs do you anticipate ? While genetics aren ’ t destiny , consider your family health history when making decisions around residence , travel , pastimes and finances . Health savings accounts can be an incredibly valuable tool for mitigating the high costs of healthcare : Not only are they funded with pretax dollars ( lowering your taxable income ), but any potential growth of your investments and qualified withdrawals are tax-free as well – all for expenses that are virtually inevitable .
• How long will you live – and how long will you live alone ? Longevity data from 2020 point to women living on average 80.5 years , compared to 75.1 years for men . However , a closer look at Social Security actuarial data reveals the actual longevity difference to be much greater . After age 65 , twothirds of women outlive their husbands – and then go on to live an additional 11.5 years . 34
• Who are the people closest to you ? Think about the people and causes that mean the most to you . Your relationship with them could impact decisions on where you live , who makes financial and healthcare decisions in the event you are incapacitated , travel plans , how you might want to support them after you ’ re gone and much more .
• How do you currently handle surprise expenses ? According to a recent Society of Actuaries survey of U . S . retirees , 19 % of retirees and 24 % of retired widows experienced four or more major , unexpected financial “ shocks ” in retirement . 35 ( The two most frequently mentioned expenses : home repairs and upgrades and major dental expenses .) How would you deal with a surprise bill currently – do you have reserves in place for such an issue ( like an emergency fund ) or do you just deal with them as they come ?
You ’ ll likely have additional considerations as you start thinking about your retirement , each with its own impact on your financial readiness . By thinking about this now , you can start identifying which are must-haves and which are nice-to-haves and creating a spending goal that matches your preferences . As you do , your financial needs in retirement will come more sharply into focus , and you can start thinking about spending goals that are appropriate for your preferred retirement lifestyle .
$
531,000
A recent actuarial report projected that a woman at age 40 in average health could expect $ 531,000 in lifetime medical and drug costs , compared to $ 417,000 for men . 36
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