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How to Budget for Retirement

November 1, 2018 by Audra Bailey Wilcox Leave a Comment

This is an article from Garland Law Offices (https://www.estateattorney.info/index.php) in Manalapan, New Jersey, that we thought others may find helpful.

“Separating financial facts from fiction will help you budget correctly for retirement.”

After spending years working, bringing in income and saving for the future, you now must spend and manage that money. It’s a big change and requires a thoughtful approach.

US News & World Report’s recent article, “7 Myths About Finances in Retirement,” says that moving into this new phase of life, can create changes in your finances and lifestyle. For most of us, despite the planning, there’ll still be some surprises when you enter retirement. Here are some of the most common financial myths about retirement, as well as the realities behind them.

  1. Medicare covers everything. You’ll be eligible for Medicare the month you turn 65. However, you should remember that there’ll still be ongoing health care expenses. Medicare only covers some services for free. Unless you qualify for Medicaid, you’ll need to budget for costs like premiums, copays, and deductibles. You’ll also need a Medicare supplement plan, which can be affordable but is not free. Note that Medicare only provides some coverage for long-term care. Consider buying long-term care insurance to help pay for additional services.
  2. I’ll just need 70-80% of my pre-retirement income. You may discover that you want to spend money on travel, dining, or a new hobby. Because people are healthier and more active today than in past generations, they actually require more money to go out and do what they’d like in their retirement.
  3. Taxes are nothing in retirement. Since you’re no longer bringing home a paycheck from working each month, you may assume that your taxes will decrease in retirement. Maybe, but you’ll likely need to plan on paying taxes each year.
  4. Downsizing means more savings. A common retirement transition plan includes moving out of the family home and into a smaller place. You might think this means fewer home-related costs, but that’s not always true.
  5. $1 million is all I need for a comfortable retirement. For years, building a $1 million nest egg was thought of as a goal for retirement. However, that figure may no longer be accurate, due to longer life expectancies, increasing costs, and active lifestyles. There’s no specific one-size-fits-all amount to save for retirement.
  6. I can withdraw 4% each year from my portfolio. This rule refers to the concept of withdrawing 4% from a retirement account each year. The idea is that you’ll be able to maintain a steady stream of income, while keeping the funds sustainable for many years. But again, with increased life expectancy and recent challenges, many retirees are severely underfunded for retirement. Consider withdrawing a lower percentage, such as 3% each year.
  7. No need for assisted care. You may believe that once you’ve settled in the home where you want to spend your retirement days, you’ll avoid assisted living or nursing home care, resulting in substantial savings. However, there could also be many expenses to stay in your own place and getting the right level of care. You might save money by staying in your home, but you could spend a lot more on care.

Reference: US News & World Report (April 18, 2018) “7 Myths About Finances in Retirement”

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Audra Bailey Wilcox
Audra Bailey Wilcox
Attorney at Wilcox Attorneys, PA
Audra Bailey Wilcox began practicing law in 1998 after receiving her Bachelor of Arts Degree in Political Science and her Juris Doctor from the University of Arkansas.Audra owned a local title insurance company and at the same time practiced law under the name “A. Bailey Attorney, PA” with offices in Fayetteville, Farmington, and Prairie Grove.In 2018, Audra transitioned her law firm and became known as Wilcox Attorneys, PA.She is very proud of the SBA family and the care and concern her staff has for the clients of the firm. The firm’s areas of practice include real estate transactions, commercial and business law, long term care Medicaid planning, business/farm succession planning, probate, wills, trusts and estate planning.
Audra Bailey Wilcox
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