Not surprisingly, one of the most common goals financial planners help their clients with is analyzing cash flow in retirement so they can live their lives comfortably without worrying about outliving their money. Cash inflow in retirement can come from many sources (Social Security, retirement plans, savings, annuities, pensions) so it’s important to consider how much and when to expect cash inflows. It’s also equally important to consider the potential for increased costs of healthcare and other expenses in retirement. No one wants to retire early only to find themselves back at work in their 70’s and 80’s because they either spent too much money or didn’t adequately analyze their income needs and expenses in retirement.
The 2018 Retirement Confidence Survey published by the Employee Benefit Research Institute highlights some of the concerns workers and retirees have about their cash flow in retirement. One particular result was especially concerning — only 38% of retirees are very confident they will have enough money to take care of basic expenses in retirement.
One probable reason these stats are so low is the potential for decreased Social Security benefits. Only 45% of respondents are somewhat confident the Social Security system will continue to provide benefits of at least equal value to the benefits received today. Many people rely on Social Security benefits in retirement, but they don’t always think about the impact of the age at which they claim Social Security on their benefit amount. Only 23% of those surveyed say they chose their planned claiming strategy with maximizing their benefits in mind. Because of this reliance, it’s important to have a plan for maximizing those benefits during both you and your spouse’s lifetimes.
Relying on Social Security benefits alone probably won’t be enough to support a comfortable lifestyle in retirement, especially considering the maximum monthly benefit in 2018 is only $2,788 per month.
No matter your age, it’s important to start thinking about how to prepare for retirement. Here are four ways to help you pursue your goal of living comfortably in retirement.
- Maximize 401(K) contributions and take advantage of the over 50 catch-up contribution.
- Optimize your Social Security retirement benefits for your personal situation taking into account your goals, objectives and life expectancy.
- Plan for increased healthcare expenses in retirement and consider long-term care insurance.
- Work with your advisor to run future cash flow reports on an annual basis to determine whether you are saving enough for expenses in retirement.