Long, long time ago, I can still remember…
Sorry. Started writing, and Don McLean’s American Pie immediately hit the brain.
It used to be that becoming a “millionaire” (i.e. accumulating a million dollars for retirement) meant that you were essentially guaranteed to live comfortably through your retirement years. But what about in today’s economic climate, crazy inflation included—is getting over that seven-figure threshold enough for you to enjoy the retirement you intended?
According to the Credit Suisse Research Institute, nearly 22 million people in the U.S. are “millionaires.” But depending on income, lifestyle, and unknown or unanticipated expenses, even if you happen to be one of those 22 million, you still may not have enough.
Why? One reason is that in today’s economic climate, a million dollars translates into a sustainable annual income of somewhere around $40,000. That’s quite a bit less than a decade ago, where a million dollars could generate approximately possibly twice that. While a sustainable annual income of $40,000 isn’t nothing, a successful retirement depends on good money management, wise decisions, and a little bit of luck. One of the common mistakes we hear about is a retiree making a major purchase upon retirement, such as a vacation home or membership in a private golf club. Both come with potentially exorbitant maintenance costs, separate from the initial investment.
Today’s inflation environment is also affecting your retirement. Inflation devalues your savings and income by increasing the cost of goods and services you will or may need. On one hand, retirees tend to consume less than before they retired, depending on their health and income. And sure, inflation tends to affect health care costs less than other markets, plus you’ll get the Social Security bump (though whether those bumps are consistently commensurate with inflation is a future unknown). But on the other hand, you still need to live. You still need to service your mortgage. Were you planning on having any fun? Can you guarantee that all your health care and long term care costs will be covered by your income and assets?
The good news is that the consensus among investment professionals is that a million dollars (and even less, truly) can still provide you with a comfortable retirement. However, proper planning, realistic expectations, and a sustainable cash flow are the keys to a successful retirement plan. Other strategies are worth considering, such as reducing housing costs, creating income streams connected with cost-of-living adjustments, and investing in markets that typically go up with inflation (e.g. real estate investment trusts (REITs), energy stocks). NOTE: We are not investment advisors. Nothing in this paragraph should be considered a recommendation for investing or used as a substitute for you talking with a competent and trustworthy financial advisor about your retirement and investment decisions. In fact, this disclaimer aside, you SHOULD be connected with a financial advisor that can work with your estate planner to make sure you’ve got all your bases covered.
One realistic expectation to set when saving for retirement is the expense that comes with funding long-term care costs. And this cost is often the most significant threat to our clients’ life savings and retirement. For example, the median annual cost of a private room in a nursing home exceeds six figures in the U.S., and the cost of nursing home care and other types of long-term care are expected to continue to increase dramatically in the future. Meanwhile, the U.S. Department of Health and Human Services notes that someone turning 65 years old today has a nearly 70% chance of needing some type of long-term care service.
Unfortunately, many families exhaust their life savings within a year or two of a family member going into a nursing home, which means your seven-figure nest egg could disappear in what might feel like a blink of an eye. And what about a spouse at home? How does he or she continue his or her lifestyle if all the money is gone? Fortunately, in addition to prudent investing, there are asset protection strategies you can implement that can help you obtain the care you need without losing the assets you have worked a lifetime to build.
Here’s the catch: you have to start planning now. Your legal and financial advisors have a large number of tools in the toolbelt to help you create a solid retirement plan. But it can’t happen without you.
If you want to discuss some of the legal options available to you that can help protect assets in retirement, or if you need a certified legal expert on your team to collaborate with your other advisors, all you have to do is connect with one of our attorneys. Let’s Talk!
