Retirement Costs Are Increasing: Prepare Now

Life expectancy has increased significantly in the past 100 years: The life expectancy of a person born in 1900 was age 47, compared to 79 for a person born in 2012, according to the Centers for Disease Control and Prevention. But when it comes to retirement planning, it doesn’t matter how long you’ll live; it matters how long you’ll live in retirement.

Actually, that’s increased as well. In 1980, a 65-year old man on average would live another 14.1 years; by 2010, he could expect to live to 82.7-some three additional years. Those few years can significantly affect your retirement planning, especially when the rising costs of retirement are factored in.

Say your annual expenses in retirement are $50,000. If you live to age 79, you’d have to have $700,000; but if you live to age 82, you’d need a total of $850,000. That’s an increase of $150,000, or 21%.

And that doesn’t even take inflation into account. According to the Insured Retirement Institute (IRI), if inflation averages 3%, a 65-year-old living an additional 14 years would need $854,000 to meet his or her expenses; a 65-year-old living 17 more years would need $1,088,000-27% more.

Moreover, those numbers also don’t factor in the rising costs of many goods and services needed in retirement, such as health and long-term care, which tend to outpace inflation.

For example, the Milliman Medical Index (MMI), which tracks the total annual cost of health care for a typical family of four with employer-provided PPO insurance coverage, shows that health care will cost them $24,671 in 2015-a $1,456 (6.3%) increase over last year’s MMI. And the cost of both semiprivate and private accommodations in a nursing home is rising approximately 4% per year.

Are you ready? If you’re not sure, a financial advisor can certainly help you plan.

Late Blooming Saver? Don’t Worry: All Is Not Lost

Most adults over age 55 are way behind on retirement savings, according to a new survey. And that can be costly.

The survey of 968 respondents, conducted by Financial Engines, showed that 68% of adults age 55 and older have procrastinated when it comes to building a nest egg. Most respondents agreed that the best age to start saving is 25, but, ironically, few actually start saving until age 35.

It makes a difference. The study provides a hypothetical example in which someone who saves 6% of his or her $36,000 salary each year sees her savings increase by 1.5% a year due to raises, etc. If the saver begins at age 25, assuming a 3% employer matching contribution and a 5% annual return, by age 65, he or she will have saved roughly $500,000. To reach the same goal when starting at age 35 or 40, however, the saver would have to contribute 12% (at 35) or 16.5% (at 40) annually.

Clearly, making up for lost time when it comes to retirement saving isn’t easy, but it’s not impossible, thanks to the power of compounding. And if returns are compounded in a tax-deferred account, such as an IRA or 401(k) plan, the potential income growth is even greater.

If, like many savers, you got off to a late start, don’t panic. Simply talk to your advisor and ask for suggestions. Together, you should be able to build a solid plan that addresses your individual financial circumstances and goals.