Some experts estimate that you’ll need approximately 70% of your pre-retirement income to maintain your current standard of living after you’ve stopped working. And, if you’re like those retired folks who choose to upgrade their post-retirement lifestyle, it may be even more expensive. Even if you think you’ll live a modest retirement lifestyle, you may face larger and more frequent medical bills. Since statistics show that the average individual will spend nearly two decades in retirement, there’s a lot of savings to be accumulated.
Not all savings plans are equal
How you save can be as important as how much you save. The rate of inflation (which is beyond your control) and the type of investments chosen (which are generally within your control) both play important roles in the size of your nest egg. As you approach retirement, your investment allocation should change to anticipate your post-employment needs. Additionally, you should periodically review the contributions you are making toward future growth. Are you putting aside the maximum amount possible in your pension plan and other savings programs? Never go into overdraft in order to fund savings since the interest you pay in bank charges is typically higher than any interest you might earn on your interest-bearing investments.
Do you know the details of your pension plan?
Often I meet with clients who assure me that they have a pension plan, but when pressed for plan details, they’re clueless as to the exact contents of the program. Keren hishtalmut, kupot gemel, and bituach minahalim plans all have many different components and terms of payment. Learn the specifics of what your pension plan will or won’t provide. Study the details of how your plan is invested. What percentage of your monthly contribution goes into actual savings versus insurance programs? Is your insurance adequate? Is it more cost-effective to purchase additional insurance outside of the plan? What survivor benefits is your spouse entitled to after you die?
Knowing the contents of the program can be helpful when diversifying your overall investment portfolio. A free “retirement benefits” spreadsheet detailing the points you should understand about your pension plan is available under the “client portal” tab at www.profile-financial.com.
Financial security and knowledge go hand in hand. Don’t be embarrassed to approach your insurance agent, employer, bank representative, or financial adviser to ask questions about your specific investments. After all, it’s your money and you have the right to know. Financial security doesn’t just happen. It takes planning, commitment, and money.
Remember: retirement is expensive.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published October 28, 2012.