The Truth About The “Golden Years”

During these days of unemployment and economic recession, it is remarkable that more and more wage earners and taxpayers save at best no more than 5% of their disposable income for their future.

There is little emphasis on the idea that the average wage earner should have at least a year’s net wages saved in case of unemployment.  Young people should consider reserving funds for a rainy day – the most talked about group of “rainy days” being the six thousand or so days in the autumn of one’s life, namely a person’s retirement.

How Much Does Retirement Cost?

Nobody really considers how much it costs to sustain one’s self during this time.  To compile such a profile could be at best quite subjective and open to many variables and many uncontrollable factors.  Once done, the rendering of such an undertaking might be very enlightening.

Although some individuals plan to retire as early as possible to enjoy many amenities of life that could not be enjoyed during one’s working or child rearing years, the US Economy finds more individuals working past the age of sixty-five, some by choice but many by necessity.

By the middle of the 21^st century, the average retiree might have a lifespan approaching 80 or perhaps 85 years.  It is then possible that a nest egg amassed by any individual might have to endure up to 20 years of retirement. 

The question raised then becomes “How much does a person need to live an acceptable and comfortable lifestyle during their retirement years?”

The answer to this question depends on many facts, circumstances and unforeseen instances such as geographic location, physical health, etc. The answer also becomes intertwined with a fear factor of preventing the full depletion of resources prior to one’s passing.

In essence, how much is enough for retirement? Lets consider what we are told, what we know, and where existence during this final journey will take us as a society.

What About Social Security?

Social Security and its survival into the 21^st Century has become a topic of such heated discussions a countless number of times.  Even if it survives, “at what cost will it exist?”  How much social security can it provide? Also, along the same lines, Medicare has a very unsteady future.

Cost of living increases to both programs have been minimal over the last half-decade with future increases predicted to be minimal.  Additionally many have speculated that social security and Medicare will be depleted within the next decade or so if serious funding is not found to revive the programs exponentially.  Thus, many retirees plan to provide their own “social security” and medical coverage during their decade or two of retirement.  However, will private funding be enough for support of the elderly during this period?

The Internal Revenue Service began the Individual Retirement Account during the 1970’s.  The amount that could be set aside for retirement was as low as $2,000 a year, nowhere near enough to fund a cushion upon which one can reserve for the future.  After only 40 years of existence, the IRS had increased the IRA deduction to $7,000 a year per person with other such vehicles of savings introduced to provide different methods by which an individual may save for the future.

With the dwindling Social Security Fund and wavering Medicare, which was initiated in 1965 under President Lyndon Johnson, the amounts set aside by most “baby boomers” to retire with may or may not be enough to sustain one during one’s retirement years.

Factors to Consider Before Retiring

So how much would a couple need to sustain a fairly comfortable lifestyle during their retirement years?  Once again the answer will vary with whomever you speak to.  However, here is a small list of expenditures that one may need to pay with one’s own funds:

1. Normal expenditures (food, clothing, home expenses, transportation)
2. Medicare premiums
3. Uncovered medical expenses

Although many of these expenses may decrease as compared to similar amounts spent during one’s working years, still, the basic costs remain.

As costs continue to rise as the years pass, it becomes exceedingly clear that a couple living in a relatively comfortable setting, even if many residential costs are already paid for, may need at the rare minimum at least $4,000 cash a month to endure a decent retirement. 

This may seem like a large amount to bear.  However, considering the cost of living increases between now and the year 2050, and the possibility that the average American may be in retirement for as much as 20 years, coupled with the need to purchase those durable items (refrigerators, ovens, etc.) during this time, it becomes clear that a couple could have to set a plan where as much as One Million Dollars may be within arm’s reach of spending.

Now the over-riding question becomes how much of this huge sum will be provided by Social Security, Medicare or by the couple themselves.  With personal savings at an all-time low, couples looking at retirement often address these years with “in-security” and trepidation.

Truly, one should sit down and compose if not try to compile a plan for these years.  Before retirement, these years do not have defining features and therefore are ignored for the most part by the young.

Retirement Planning Starts Now

As years pass and the aging process continues, this final journey into one’s golden years takes on defining features. To reflect and to enjoy these so precious moments, ones life should not be clouded by the threat of poverty.

They are concerned and rightfully so with raising a family.  However, as the years pass quickly, this period, the final phase of one’s life should not be ignored especially in one’s early working years, when planning can be most effective.

The information contained herein is is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined though consultation with your tax adviser. This article represents the views of the author only and does not necessarily represent the views or professional advice of this publication or the author’s employer.