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Financial Strategies
Ready for a Pay Cut? Probably Not. Make Sure Your Retirement Years Are Golden.
By Michael Clancy
Vice President & Wealth Advisor, Morgan Stanley
What’s the appropriate percentage of your preretirement income that you will need to maintain your lifestyle during your golden years? The typical answer is 70 percent to 80 percent.1 Yet conventional wisdom certainly doesn’t apply to everyone.
Focus on Current Expenses
A more realistic strategy is to concentrate on your preretirement spending. Why? It’s the best way to project the present into the future. As retirement draws near, take the time to count up all your current expenses.
The Essentials
The big-ticket items are housing, food, transportation and insurance. Under housing, for example, you may want to add up mortgage payments, real estate and local property taxes, utilities, telephone, cable and maintenance. Will your home be paid in full at retirement?
Do you dine out often or prepare meals at home? Do you think you’ll want to eat out more or less often than now?
How much does it cost to keep your car running? Over the next 20 or 30 years, you will no doubt need to purchase a vehicle. Will you take out a loan? Transportation costs also include gas, maintenance, repairs and insurance.
Health insurance is another big-ticket item that deserves consideration. Will you have coverage from your previous employer or will you need to purchase insurance to supplement Medicare?
Don’t Forget Discretionary Items
In addition to the necessities, take a look at your desires. Right now you may not have time to golf three days a week but, after retirement, you may want to indulge more often. Do you want to take that once-in-a-lifetime trip around the world? Did you want to contribute to your grandchildren’s education? These future one-time big expenses may be important to you after you retire.
The bottom line: Retirement expenses may be as high as the ones you currently have - maybe even higher.
1 Source: Aon Consulting and the Georgia State University Center for Risk Management and Insurance Research.
Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Investors are urged to consult their personal tax or legal advisor about establishing a retirement plan and the tax consequences of any investments made under a retirement plan.
Investments and services are offered through Morgan Stanley DW Inc., member SIPC.
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