Most baby boomers are at various stages of preparing for retirement, depending on whether they were born at the beginning or end of their generation. The smart ones realize that effective planning starts well before retirement age. Important calculations need to be made to determine what it will take to survive financially throughout the retirement years. Post-work lifestyles and passions also need to be defined, and consideration for unexpected events should be taken into account whenever possible.
Counting on others to provide for us in our old age is a risky proposition. In the U.S., the ratio of working-age citizens between ages 15 and 64 supporting those over 64 is currently 5:1. By the year 2050 this ratio will drop to 3:1, according to United Nations data. In China things are even worse. They will move from the current 9:1 ratio to 3:1. And in Japan the ratio will be 1:1 in 2050.
It is important to rely on ourselves and our own resourcefulness. Society is changing to deal with the aging demographic with less generous pension plans, longer working hours, and an increase in the retirement age. Back in the 1980s, 38 percent of people had traditional pensions. By 2008 the number dropped to 20 percent. If a traditional pension will not be part of our retirement equation, we need to fill in the blank with other investments and savings alternatives.
Don’t count on Social Security to foot your entire retirement bill either. With an average monthly amount of $1,230 paid at the beginning of 2012, it should only be viewed as a supplement to your other sources of retirement income. It is a piece of the puzzle, but should not be considered the entire solution.
Health demands and expenses will increase as we age. Fidelity estimates that a 65-year-old couple retiring in 2011 will need $230,000 to cover likely out-of-pocket medical expenses in retirement. And this estimate does not even include the cost of long-term care. Such burdens could prove catastrophic if we do not plan ahead with additional savings, health insurance, and long-term care coverage.
Most people approaching retirement would like the option to stay in their current home if they choose to and remain healthy enough to safely do so. Paying down your mortgage over the years provides flexibility, and the equity can be available for emergencies. Whether a decision is made to stay in the existing home or sell, having the option empowers senior citizens.
Remaining independent in retirement requires planning ahead, realistically evaluating your situation, and taking appropriate action to provide for your retirement needs. You can’t count on the government or your former employer to finance your retirement years. It’s something you need to take care of yourself.
Dave Bernard is not yet retired but has begun his due diligence to plan for a fulfilling retirement. With a focus on the non-financial aspects of retiring, he shares his discoveries and insights on his blog Retirement–Only the Beginning.