By Anna B. Wroblewska.
We're all concerned about retirement, and you may even spend a lot of time thinking about what your retirement might look like. But even if you're setting money aside, do you know what you're preparing for? What does retirement actually look like these days?
These three statistics will give you some insight -- and the picture is not at all reassuring.
Asset levels are low
In a recent survey, the Employee Benefits Research Institute found that 20% of married retirees over the age of 85 had no non-housing assets left at death. Over 12% had no assets left at all!
This statistic underscores the very real risk of outliving your savings. Of course, a long life is a good problem to have, but it can become a very difficult time if you run out of money. While it's very difficult to estimate how much money you might need (more on that in a moment), the fact is that too many people end up with nothing just when they might need it most.
What can you do about it? If you're saving, don't stop -- and try to save more if you can. If you aren't saving for retirement, it's time to start.
As an investor, make sure that you're taking on enough risk that your portfolio can grow for the long run (without taking on so much that you can't sleep at night). This generally means a heavier weighting towards equities than bonds. Even as you approach retirement age, don't be afraid of risk: one historical study found that a 60% allocation to equity while in retirement was the best way to avoid the risk of outliving your money.
Together, all this is to say: save as much as you can, and invest with enough risk to get you through the long haul.
Maintaining good health
A Fidelity study found that the average couple will spend $240,000 in healthcare expenses through their golden years.
That number might be enough to make you catch your breath. What's worse, these numbers don't include the additional costs of long-term care -- a service that 70% of retirees will take advantage of at some point or another.
Planning for a quarter million dollars in healthcare expenses might seem like a daunting idea, but at least it provides the benefit of having some kind of number to shoot for. Again, a statistic like this underscores the importance of setting money aside. You might be in great health as a retiree, but the last thing you want is to worry about is whether you can afford the routine care that most older people utilize.
Besides saving and investing, numbers like these bring home a secondary point: the importance of maintaining your health. Eating right, exercising, quitting smoking, and reducing stress levels are all a good idea -- think of them as an additional deposit into your retirement savings. Whatever you can do to minimize those healthcare costs later on, the better.
Especially in light of the most risky healthcare cost of all: long-term care.
The reality of long-term care
We all know that long-term care is expensive, but did you know that long-term care insurance premiums rose almost 9% last year?
Long-term care might just be the retirement budgeting line item that is the most tempting to ignore. No one wants to think about needing it, and the costs you could incur range so widely that it might seem impossible to get a grasp on it.
However, it's an issue you overlook at your own peril. Not only are the actual prices of long-term care rising fast -- home care services going for an average of $45,000 per year and nursing come care nearly twice that -- but insurance premiums are skyrocketing as insurers attempt to get a handle on increasing longevity and ever costlier claims.
So what can you do? Not everyone has the asset levels to "self insure" against the risk of needing long-term care. That makes long-term care insurance an imperfect but still important option. Like credit, it's easiest to get long-term care insurance when you're relatively young and healthy, so if you're considering it be sure to start shopping sooner rather than later.
While rising premiums are unavoidable, you can still plan ahead for what is likely to become an increasingly important part of your budget. With premiums rising faster than care itself, however, take the time to run the numbers and see if it doesn't make more sense to set money aside instead. Your decision should be based on your health, your current age, and your willingness to shoulder the risk of insuring yourself. With so much riding on your ability to save, invest, and plan for your retirement, the additional issue of long-term care might be unwelcome, but it is important.
While you might never have seen these statistics before, they all underscore an important piece of common wisdom: your retirement increasingly depends on you. The best way to ensure a happy retirement is to focus on the basics of saving, investing, and taking good care of yourself. There's a lot of uncertainty out there, but by doing what you need to every day you can help keep it at bay.
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