Planning for Retirement

 

extensively, and participating in a myriad of other activities that have one common denominator: They cost money!

"Furthermore, you're overlooking a couple of major expenditures that sometimes arise in retirement that can be very difficult to cope with on a reduced income. Sadly, deteriorating health often goes hand-in-hand with advancing age. Any number of medical costs, including insurance, can cause your financial well-being to decline right along with your physical well-being.

"And while you'll probably no longer have dependent children, what about dependent parents? As I've said many times, Americans are, for the most part, financial illiterates. You three are learning the right things to do, but most people aren't as fortunate, including most parents. Oftentimes, elderly parents need financial help from their children."

"My dad threatens me with that scenario daily," I chuckled.

"Your years in retirement should be among the best years of your life, so you owe it to yourself to do everything possible now, without crippling your current standard of living, to enable you to enjoy them to the fullest. That means saving enough money in your working years to enable you to maintain your after-tax income in retirement. I say 'after-tax' because, obviously, it's not so much what you make that's important—it's what you keep. In that respect, my earlier example of our fictitious Cathy needing one hundred thousand dollars in retirement to match her last year's working income was probably overstated in that some of her retirement income—her Social Security income— would receive preferential tax treatment. And, of course, she'd no longer have to make Social Security contributions.