Wednesday, April 20, 2011

Retirement Savings

The trouble with retirement is that you never get a day off.
~Abe Lemons
How much retirement savings do you need? Probably more than you think. I read one column about a couple that thought 1 million dollars would be enough. But the children needed help with their mortgages and the money was greatly depleted.

Megan McArdle at TheAtlantic.com says, You Need More Retirement Savings. The old school thinking was that your expenses will be less during retirement. The house is paid off. (Maybe? Did you get a second mortgage or treat the house as an ATM with repeated home equity loans?) The kids have graduated college. Your house is furnished and you're not planning any major changes. Only a car loan remains.

In retirement the work expenses of commuting driving or train, business lunches, business clothes, etc are a thing of the past. But there'll be new expenses for health care - especially once you're off the Cadillac quality health plan and facing higher copays and deductions.
"Medicare does not cover everything--Medigap insurance is costly, and may still leave you with considerable out-of-pocket expenses."
You may also find that you'll need to hire a maid service to keep the house clean, or someone to mow the lawn, shovel the snow, etc. Not that you're lazy or lack the time but you might be physically unable to do the labor like you used to.

But I've thought of that you say. I'm planning to sell the house, buy a cheaper condo or assisted living apartment and pocket the difference. But suppose you're trapped in a terrible housing market like we have now where no one is buy or you get half of what your home used to be worth? Or you're competing with the other baby boomers for decent retirement space and prices for "retiree" homes shoot up.

Bottom Line

McArdle concludes that you retirement spending habits will be "about the same amount as I need now ... Even assuming that Social Security continues as promised, most people don't have nearly enough saved to make up their current incomes."

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