Many people think that they will not live to retirement, or that if they should reach retirement, they will live for only a few years.
This is not very realistic thinking. An improved standar of living and advances in technology have greatly added to the life span of the average people - statistics show that today once the average man has reached age 65, he can expect to live more than 13 years, while his wife can anticipate even greater longevity.
There are many reasons why it is difficult to provide adequately for retirement. With more and more emphasis on formal education, workers are starting their careers at an older age than did their fathers; mandatory employee retirement is becoming increasingly common; high personal income taxes greatly reduce individual savings or investments, thereby making it more difficult to accumulate satisfactory sums. Increasing costs of living also mean less savings dollars. Still, voluntary early retirements have been increasing over the the last two decades because of a desire by many for more leisure and the time to enjoy many activities while they are still young enough and in good health. All this points to the fact that it is wise to start planning now!.
No one is asking you to give up your dream. It can be a good dream if it keeps you moving toward the future, instead of lingering in the past. In youth, dreams of future greatness spur us to achievement by overcoming fear of failure to gain our goals. As we mature, we see the reality behind our dreams. Wisdom gained from our experiences enables us to separate fact from fancy. And in our middle years, as in our youth, dreams will supply us with the will to attain our goals.
Think about your retirement today, no matter how young you are. If your dream is a realistic goal, keep it and develop it. If it is not, reevaluate it. If you have not started to plan, start now.
During the next decade, overall housing demand is expected to run well ahead of supply. This means that housing prices will probably continue to increase. To get best housing for your money, you may want to consider one of the alternatives to buying a single family home on its own spacious lot that have become popular in recent years. Some of these alternatives are described below:
Moving to rural areas – Many people find that if they are willing and able to live 20 to 40 miles from their jobs, they can obtain housing at relatively reasonable prices. This is especially true around cities such as San Francisco and Washington, D.C.
Small “no frill” houses – Some builders are selling houses that comprise about 1,000 square feet, have two bedrooms and one bath, and lack some of the standard conveniences such as a dishwasher and carpeting.
Cluster housing – In cluster housing, a small building might contain three to five individual tenant-owned units. The buyer might lease or own the land. Such an arrangement saves on land cost and heating and cooling costs and can mean a savings of $15,000 to $30,000 over standard new single-residency housing in the same area.
Condominiums – The most popular alternative, condominiums are dwelling units in a group-owned building or on group-owned land. Some people think that condos provide the best of home ownership and renting by giving the buyer ownership without exterior maintenance chores.
Rehabilitating inner-city housing – This alternatives is becoming increasingly popular in established cities. Inner-city buildings are often cheaper than similar buildings in the suburbs but taxes are often higher in the city.
Building your own – Many companies now sell kits that allow the buyer to construct the house. Other companies will do the majority of the construction (the foundation, exterior walls, basic plumbing, and electricity) and leave much of the interior work to the buyer.
Renting – Rentals are hard to find because of a near halt in construction, a very low vacancy rate, and conversions to condominiums. However, some one-family homes, especially in the city, are being divided into apartments.
As a preretirement financial planning exercise, a few years before you plan to retire, work out a monthly spending program for a 12-month period. Use the following categories:
Food – meat, vegetables, beverages, dining out, dinner guests.
Housing – mortgage or rent, real estate taxes, property insurance, telecommunication devices, heat, lights, cleaning supplies, repairs, furniture.
Clothing – new apparel, laundry, dry cleaning.
Medical – doctors, dentists, hospital bills, glasses, prescription medicines, drugs, health insurance premiums.
Transportations – automobile payments, gasoline, oil, automobile repairs, automobile insurance, bus and taxicab fare, other.
Personal – haircuts, beauty, parlor, cosmetics, tobacco, postage.
Recreation – books, films, magazines, newspapers, audio visual devices, computers/note book, trips, theater, club dues, sport, and cultural events.
Insurance and taxes – social security taxes, income taxes, life insurance premiums.
Miscellaneous – church/religion contributions, charitable contributions, gifts, savings.
These nine items will give you a clear idea of where your income is presently being spent. Chances are that your heaviest expenses will be in the areas of taxes, life insurance, housing and utilities, personal expenses, food, and transportation.
When you have determined your average monthly expenses (add costs of each month in each category and divide by 12), then estimate how much you expect to spend in these categories after retirement. Be realistic. In most categories you may find that you are able to reduce expenses – personal, insurance and taxes, housing. In others, you will find that your expenses before and after retirement are approximately the same – sometimes a little less, sometimes equal, and sometimes a little more.
Here is the dream: “when we retire, we’ll go first-class, with plenty of time for everything. Social security, the pension plan, the life insurance, the health insurance – you know, the whole package. Of course, it won’t be as much as we’re making now, but our expenses will be way down. The children will be on their own, and there will just be the two of us….”
And here is the reality: A similar dream is being fantasized by most people; the majority share the dream – but the dream is unrealistic. Few people know how to retire and fewer will admit it.
Let’s take the dream. For one thing, the future financial situation is vague: “Not a problem. Social security, the pension plan, the life insurance, the health insurance – you know, the whole package.” No, we don’t know. And we doubt whether most people do. While they may be assured of receiving benefits from social security and from a company pension plan, have they sat down and figured out exactly what they will want to receive each month after they retire? Have you?
The first step in financial planning is to analyze your present financial situation (assets and liabilities) and to determine what you can expect it to in the future. When you retire, your main assets will be your home and other real estate; cash value life insurance; social security and pension plan benefits; cash in the bank; and investments; such as stocks, bonds, mutual funds. These will have to offset your chief liability – your living expenses.
Examine your present money management to be sure that you aren’t wasting dollars now that could later increase your retirement income. Anticipate retirement expenses and set your monthly income goal. Ask yourself what you expect your standard of living to be the day before you retire. And ask yourself why you think it should change the day after you retire.
In retirement years your income will be fixed but the cost of living won’t. Three percent inflation a year will mean about 55 percent increase in the cost of living for the individual who is planning to retire in 15 years. Inflation won’t stop the day you retire!
