Being ready for retirement is about more than just money. Image source: Pixabay..
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Over the next couple of decades, about 10,000 baby boomers will retire every single day. If you're one of them, hopefully you've taken the necessary steps to be ready when it's your turn. Unfortunately, millions of baby boomershaven'ttaken those steps, and a lot of those who are unprepared aren't even aware of it.
But before you just assume you'll be fine, make sure you've asked the hard questions and taken the time to consider everything you should. A good starting point? The five things this article will discuss. Whatever your situation, keep reading to make doubly sure you know if you're retirement-ready.
Will housing debt and costs be a problem?According to a 2014 study by the U.S. Consumer Finance Protection Bureau, more retirees and people near retirement age still have a mortgage and are carrying more debt in general. And while debt isn't necessarily bad if it's used conservatively, the trends of more retirees carrying larger amounts of debt will have repercussions for millions of baby boomers.
According to the CFPB study, 65% of older consumers carried some form of debt in 2010, up from about half in 1992:
Image source: CFPB report.
Housing debt is of special concern, and is a double-edged sword in retirement. According to a 2014 Harvard University study, higher housing costs directly affect the quality of life for many retirees, and one-third of those 50 and over spend more than 30% of their income on housing. Every dollar you pay for housing is one dollar less you can spend on food, healthcare, or other basic needs.
The other way housing debt cuts in retirement is reduced home equity. The median 50-plus household had $111,000 in home equity in 2010, a valuable nest egg particularly later in life. As you age, having the ability to tap home equity through selling and downsizing or a reverse mortgage could make all the difference in the quality of your retirement.
The news for baby boomers is mixed: 45.8% of families aged 55-64 had a mortgage or home equity loan in 2013, down from almost 51% in 2010, and lower than any year reported since 2001. However, the Harvard study also pointed out that fewer 50-64 year olds own a home. In 2005, more than 80% of that group owned a home, versus about 75% in 2013. That's fewer who will have home equity to tap in retirement.
Know what your retirement income will beRetirement income primarily comes from:
- Social Security.
- Retirement savings.
- Other assets (income property, stocks, bonds, and so on).
- Wages or business income.
Social Security plays a huge role in paying for retirement. You can also influence how much it pays you to some degree, by deciding when, between age 62 and 70, to start getting paid:
Data source: Social Security Administration.
While the monthly amount you'll get goes up significantly by delaying your benefit, the total dollars you'll likely receive will probably work out about the same. So why delay? Because you can't count on dying on schedule, and if you outlive your life expectancy (and other assets), the higher monthly income could make a huge difference in your later years. This is particularly true if you don't have enough retirement savings, and the average boomer probably doesn't.
According to Vanguard, which managesretirement plans for3.9 million Americans, the median account balance for its clients aged 55-64was $76,618 in 2014. According to the Employee Benefits Research Institute, the median individual IRA balance in 2013 was $31,692 for ages 50-54, $41,149 for those 55-59, and $55,807 for those 60-64.
Put these two studies together, and that's retirement savings between $108,000 and $132,000 for millions of boomers. That might seem like a nice nest egg, but only works out to less than $5,500 per yearover the average retirement.
The point? Reviewyour sources of retirement income, determine how much you can count on getting, and compare that to your retirement expenses. If you're going to come up short, take advantage of the time you have to shore things up by ramping up retirement savings, paying down debt to lower future expenses, or even delaying retirement and working longer to make sure you're financially ready.
Getting ready for medical and long-term careMedicare pays for a large portion of medical expenses in retirement, it won't pay for most of the kinds of long-term care that 70% of people over 65 will need at some point. If you're married, there's a 90% chance that you or your spouse will need long-term care that probably won't be covered by Medicare.
Image source: U.S. Department of Health and Human Services.
The vast majority of long-term care is provided unpaid, often by family members. And while this may be the best solution for many people and situations, it's often the only affordable one. Depending on where you live, unskilled home care can cost $30,000-$56,000 per year.
Long-term care is often needed late in life, when other assets such as retirement savings may have been depleted. It may be worth exploring long-term care insurance if you don't expect to have enough wealth to cover this potential expense late in life.
Knowing what you'll do in retirementTravel, fishing, spending time with family, and playing golf probably aren't suitable long-term plans. In the short-term, a little bit of travel and pursuing hobbies will fill the hours, but the reality is many retirees simply don't find fulfillment in their retirement. Not only can this lead to unhappiness and even depression, but it's simply a lower quality of life that you shouldn't settle for. This situation is doubly true if you're on the fence as to whether you truly have enough saved for retirement.
Few retirement hobbies turn into fulfilling passions. Image source: Wikipedia.
As a result, many retirement-aged boomers choose to continue working part-time, start a business, or even put off retiring completely. Not only can these things keep you busy, but you'll almost certainly benefit from continued social interaction, the sense of accomplishment you'll get from your work, and the continued that keeps you from drawing down other retirement assets.
It'syourretirement; make it what you wantBeing ready for retirement is both psychological and financial, and even the most financially prepared person can be miserable if their retirement isn't fulfilling. At the same time, if you're not financially prepared, you'll be equally miserable. Make them both part of your retirement plan, and it'll be much easier to get retirement-ready.
The article Attention, Baby Boomers: Here's How to Know If You're Retirement-Ready originally appeared on Fool.com.
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