Time really does fly as we get older. Here we are, already near the halfway point of 2012. As July approaches, it's a good time to see how your New Year's plans have fared. Here's a short list of adjustments worth considering that can improve the quality of your life in retirement.
First, there are important background issues to consider:
Investment markets. Don't expect satisfying gains. Even if Europe does get its financial act together, any market bounce is likely to run into the reality that economic activity is weaker than hoped just about everywhere, especially in Europe, China, and the United States.
Yields. Interest rates aren't going anywhere until we deal with the dreaded "fiscal cliff" (see below).
About that fiscal cliff. Unless and until Congress intervenes, we are facing automatic tax hikes and federal spending cuts totaling trillions of dollars—easily enough to push the economy back into recession. The Congressional Budget Office (CBO) has been issuing very depressing reports of late about the fiscal cliff. Avoiding the cliff, or at least minimizing the impact of going over it, depends on election results and a functional Congress. But it's a safe bet that you will have less money in your pocket next year than this year.
Healthcare spending. Even without the threat of a fiscal cliff, you should expect to shoulder more and more of your healthcare spending. If federal spending on Medicare and Medicaid does continue to rise, it will be because more and more seniors need healthcare. But if you look at the tab for federal healthcare spending in terms of what will be spent per person, this amount must go down.
Longevity. Money for healthcare and all other expenses may need to last well into your 80s or even 90s. Factor this into decisions about money and how you want to spend your time, including extending your working life to help pay for all a long lifespan.
Against these realities, here are four mid-year resolutions:
Wellness. The Bipartisan Policy Center, a Washington think tank, toted up healthcare spending and found that we spend 88 cents of every dollar on healthcare services, 4 cents on wellness, and 8 cents on everything else. Spending only 4 percent of the healthcare dollar on wellness doesn't make sense when you look at the nation's worsening health problems, particularly obesity and diabetes. Of course, healthcare providers get paid to provide, well, healthcare, and we have the expensive hospitals, equipment, drugs, and medical tests to prove it. But on an individual level, there is little reason for you to under-invest in good health. Take a look at what you're doing to maintain and even improve your health. The best way to curb healthcare costs at any age is not to need those costly services in the first place.
Spending. The primary area you can control in your retirement scenario is how much money you spend. Whatever you think you'll be able to afford, the odds are overwhelming that you will need to spend less. If you have a spending plan, review it to see where you can cut. If you don't have a plan, make one.
Fees. High fees for 401(k)s and other retirement savings plans are often your worst financial enemy in preparing for retirement. Later this year, 401(k) participants will finally be getting new federal rules that require their plans to provide detailed reports on the investment, management, and recordkeeping costs that are passed on to them. Any cumulative fee much above 1 percent is probably too high. And while the extra cost may seem small in any given year, it really adds up over the decades that many people invest in such plans. Use BrightScope to check out your plan fees and when you get that initial report later this year, make sure you understand it, and take action if your fees are too high.
Family finances. Our hearts say we should help out adult children and other family members when they need it. And of course we should. But do not jeopardize your retirement in the process. That doesn't really help your family in the long run. Yes, it's very hard to see someone you love having a hard time. But a 30-year-old child has a long time to get her finances back in shape. That child's 65-year-old parents have very little time to recover from spending significant sums of money today to help out.