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Jeffery W. Masters & Associates, Inc.

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The Challenges of a 30 Year Retirement

The Challenges of a 30 year Retirement


In a recent North American survey by Allianz Life, with people between ages of 44 and 75, more than 3 in 5 said they worry more about running out of assets than about dying. Funding a 30 year retirement will take financial planning prowess as you juggle the

effects of Longevity, Inflation, Healthcare costs, Taxes, Market Volatility, and just living expenditures.


Your Retirement could last longer than you think

Since 1950, life expectancies have increased by more than 10 years

(kclirary.lonestar.edu). According to estimates, if you are 65 and married, there is a 50% chance that either you or your spouse will live to age 92 (US 2000 Mortality Table). So how long are you going to live? Today there is a higher probability that you'll live much longer than your parents or grandparents. Longevity is perhaps the greatest challenge for those considering retirement. Most boomers seriously underestimate their life expectancy . . . you must realize that if you are middle class economically & have good healthcare, that you will live beyond the average life expectancies. Last year Hallmark alone sold 85,000 Happy 100th Birthday cards! The latest from the Census Bureau is for 1.1 million centenarians by 2050. Can you afford to live to 100?


Keeping up with increasing expenses

Prices for basic expenses (food, housing, transportation, utilities, etc) tend to increase over time. But most of us underestimate the impact these costs can have on our standard of living in retirement. Inflation rates have varied historically, but even at modest rates, inflation can diminish your purchasing power in retirement by 50% in 20 years. In 30 years at just 3% annual inflation (average) a person initially retiring with $50,000 of annual income would need $121,363 in retirement income to keep pace with inflation.


Healthcare costs

In addition to basic expenses, the cost of healthcare is the biggest financial challenge facing Americans today. Workers now pay 47% more than they did in 2005 of family healthcare coverage, while their wages have increased only 15% (Kaiser Survey of Employer Health Benefits 2010). Healthcare costs in retirement will be even bigger as

health issues arise. It is estimated that an average, healthy 65 year old couple will need $260,000 out of pocket to pay for their healthcare costs during retirement (2010 Center for Retirement Research at Boston College).


Will I pay lower taxes in Retirement?

Just because you are not working for wages, doesn't mean you will be in a lower tax bracket in retirement. Think about all your sources of income in retirement: IRAs, Pensions, Investment or Real Estate income, even social security are taxed as ordinary income. You could actually be in a higher tax bracket in retirement. In addition, a soaring federal deficit will imply that federal tax brackets will move higher to afford all the social welfare programs the government has promised. The deficits, in addition, may have significant negative influence on state and local taxes if government subsidies are reduced (The Tax Foundation, March 2010). It is no wonder 16% of seniors live below the poverty line in America . . and possibly a much higher percentage in the future if federal programs and support are cut. Although all

this data is depressing and discouraging, it does cause us to be sober minded and serious about all our financial decisions and disciplines. Planning your future in a way that pleases God involves faith (Hebrews 11:6), not fear (Ps 23:4, 91:5). It also involves wisdom, so we must become knowledgeable, stay informed, practice discipline, and faithfully carry out the duties of a steward. “By wisdom a house is built and by understanding it is established, and by knowledge the rooms are filled with riches” (Proverbs 24:3-4).