Retirement Income Planning
Will you retire in comfort?
Factors You Need to Consider:
Planning for adequate retirement income is a vital personal financial objective. Understanding the factors that hinder the achievement of this objective is important to the planning process. These factors include:
- Investment risk
- Inflation risk
- Long-term care expenses
- Catastrophic care costs
A brief explanation of each factor follows:
This factor consists of investment risk (fluctuations in the investment markets may result in the reduction in the value of retirement savings), reinvestment risk (reinvestment of proceeds at a lower interest or investment rate), and interest rate risk (an increase in interest rates that reduce the value of investments, like bonds).
This factor concerns the declining purchasing power of the dollar due to the rising cost of goods and services.
Long-Term Care Expenses
This factor concerns the expenses for specialty care due to physical or mental disabilities, particularly as life expectancies have increased and expenses have outpaced the general inflation rate.
Catastrophic Care Costs
This factor concerns the cost associated with health care, including the cost of Medicare coverage for doctors and prescriptions, supplemental insurance to pay for the costs of services not covered by Medicare, and out-of-pocket costs for co-pays and deductibles.
This factor concerns the impact of income taxes on retirement income and the application of various tax rates to different forms of income, e.g., capital gain income, dividend income, interest income, municipal bond interest income, IRA income, 401(k) income, etc.
Question: Have you planned for these five factors? While these five factors, some more than others, affect your income during your working years, you may not notice their influence because you are not depending on your savings as the primary source of household income. However, these five factors can greatly affect your retirement income; therefore, you should plan for their impact to promote the adequate funding of your retirement.