I was on a path to retire at age 62, but major miscalculations of my retirement income needs forced me to come up with a new plan. Now, instead of enjoying an exotic trip to explore the Alaska panhandle, I’ll be working until age 70. According to a recent article by USA Today, it’s not unusual for people to be lost when it comes to retirement planning. Since I’m in my 40s, I have a small chance that my investments will grow exponentially. More likely, I’ll have to work longer to build up my retirement accounts so I can replace enough of my income in retirement. I estimated I’d need just $500,000 for retirement, but now I’m figuring I need to double that number to $1 million.
Customizing my plan
According to USA Today, most experts recommend replacing 80 percent of one’s income in retirement. However, the situation depends on whether a person has children, housing “wealth,” a spouse and other factors. Since I was expecting to pay off my mortgage in my 50s, I figured I would have fewer housing expenses. Even though my mortgage will be paid off, I suspect I’ll have higher property taxes and home owner’s insurance as well as homeowner association fees to pay in retirement.
Paying more in taxes
The USA Today article points out most retired people pay little or no taxes. Although I would love to have tons of money in a Roth IRA or Roth 401(k), most of my retirement money is in taxable accounts. I will owe ordinary income when I withdrawal money for retirement. In the case of my traditional IRA, I’ll be forced to take required minimum distributions. Now lawmakers are even considering changing it so people have to take required minimum distributions from their Roth IRA. Even though I won’t owe taxes on my Roth, it will deplete my Roth savings sooner so I’ll have to depend on taxable income.
Living longer into retirement
I used to assume I’d live to be in my 70s, but I should have planned for retirement based on different assumptions. According to USA Today, married couples live longer than single people. Also, people with more education tend to live longer. I also have fairly good health habits and good genes. Instead of saving enough for 20 years of retirement, I need to save for 30 years after retiring at 70.
I’m not so sure spending trends in retirement tend to decline with age. Experts point out that retirees in the “go-go years” spend more money on travel. However, I’m sure older retirees have more medical expenses as well as costs associated with nursing home care. I’m going to plan as though my expenses will go up as I grow older in retirement. I may also find myself wanting to give financial assistance to grandchildren or great grandchildren or other relatives in the future. Having more saved for retirement will translate into a more handsome inheritance for my children one day as well.
More from this contributor:
COLA for Social Security Isn’t Fair for Young
My Husband Refuses to Take Social Security
Planning for Retirement with No Social Security