Retirement Planning 101 – Can You Afford To Retire In 2013

Do You Plan To Retire In 2013? Can You Afford To? Do Careful Retirement Planning

Retirement planning 101When the year 2013 begins, there will be approximately seven million individuals in the USA, who will be approaching 65 years of age. Many of these will be giving serious thought to retirement planning. For the first time in decades, there are some financial planners that are very concerned with current conditions, and have gone so far as to warn those who are about to take that step.

They go on to say that even if we avoid the pending “fiscal cliff”, there is a lot of uncertainty about taxes, scheduled spending along cuts, the stock market in general, and the health care issue. Putting all of these issues together, with the large number who are contemplating retirement planning and others who will lose their jobs, could make 2013 a very troubling year for new retirees.

The primary concern that is number one on the list is taxes, caused by a substantial increase in tax on investments. This is sure to be felt by many retirees. If a deal can’t be worked out before the end of 2012, the rates now in effect known as the Bush tax cuts, will end and capital gain and dividend rates will increase.

For 2012, we have tax rates in effect whereby the highest rate on capital gains and qualified dividends is 15%. For 2013, the highest capital gains rate would increase to 23.8% and dividends to 43.4%. They also feel that any deal that is struck will call for higher tax rates and for retirees to include that in their plans. There are a lot of “ifs” in this scenario, with the uncertainty of an individual’s tax rate at the top. This makes retirement planning very difficult.

On the other end, the elderly will have less to spend if the markets under perform, and it will be difficult at best to even plan for any tax increases. Suppose an individual retires in January and a tax deal isn’t agreed on until March or April, do the new tax rates become retroactive to the first of the year? This alone could become a risk that may be quite costly.

There are many conflicting estimates regarding those who participate in pension plans. The National Institute on Retirement Security estimates that approximately 20% of those individuals employed in the private sector participate in a pension plan. However, recent data furnished by the Internal Revenue Service reflects that approximately 23% of all workers, in all sectors, are not participants in any retirement plan.

The bottom line is that a large number of future retirees in the retirement planning stage, are not prepared for the golden years they have been looking forward to and simply can’t afford to retire. Many who are now employed and should be contributing the maximum to their 401(k) accounts, can’t afford to for many reasons. Some planners believe that an individual needs to have a retirement account value with at least two to five years of expected income before they retire.

Social Security payments in 2013 will increase by only 1.7% and the Medicare premium deduction will also increase, not leaving much of a net to the recipient. In addition to this, food, clothing, gas, plus health insurance premiums are all increasing while the retiree’s income remains practically fixed.  Future and present retirees will be feeling this pinch for a few years due to the low interest rates in effect. The Federal Reserve isn’t doing much in this area either and it will be difficult for seniors to generate the needed income to cover their expenses.

Given these facts, there will be increased stress placed on retirees and then a corresponding increase in health cost. To give you an idea of the cost of health care, Fidelity Investments prepared a report that said an average 65 year old couple who retired in 2012, would need approximately $240,000 to cover their medical expenses through their retirement years…this was a 50% increase from the amount needed in 2002. They estimate this will increase by $20,000 for 2013, and needs to be factored into their retirement planning.

2013 will see Medicare premiums increase from $104.20 to $120.00 each month, plus those who are considered “wealthy” will be seeing an increase in various taxes to pay for Obamacare. There is also the possibility of many physicians who will be dropping Medicare patients due to a reduction in reimbursement. Our own physician, who is a member of a group, does not accept any insurance plan. The patient pays them for the full amount of the bill and as a convenience, they submit your claim for you to Medicare or any secondary carrier for reimbursement.

Medical costs will continue to rise for retirees, especially as companies in the private sector stop medical coverage when an employee retires. Those doing retirement planning agree that 2013 will present unique problems whether there is a fiscal cliff or not. They say also that anyone retiring in 2013, should be prepared to find another job if required.

Granted, there are some who are retiring simply because they need a break or are burned out. These types of individuals generally become bored after a few months of retired life, but trying to find a job that pays well will be difficult. Companies are now hiring much younger workers at lower salaries.

These same planners are issuing cautionary statements for 2014 as well. The bottom line is, if you plan to retire in 2013 or 2014, you need to be aware of the uncertainty in taxes and especially medical costs. As you begin retirement planning, do your best to include all of these factors, and if possible, meet with an experienced planner or counselor and cover all bases.

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Brandy Oliver
Guest

Wow! I really have to get started with our retirement savings! Something always comes up, (of course!), and we end up having to use the money we have set aside for break downs, repairs, and emergency funds. It’s something that all my life I swore I would do properly, ever since I figured out how to end up with a million dollars when I retired. But that was at 18, and I am 38 now, so that is certainly not going to happen. It is extremely important, especially since the money you pay in all of your life, sure won’t… Read more »

Doable Finance
Guest

The more one saves for retirement, the better. You save not only for any emergency today but you save when you retire – if ever.

Abbey Fry
Guest
Abbey Fry

My dad retired a few years ago and thought he was going to be living the good life. Well, after being retired for a few years, sadly he was one of those individuals who had no choice but to go back to work. I felt bad for him and wished that there was something that I could do for him but I am struggling myself with the economy and my family. It saddens me to think that he might be working until he passes away.

JTomlinson
Guest
JTomlinson

Gotta start saving for retirement young these days, and be sure to have your house and vehicles paid off before you retire so that you have no debt. It’s also a good idea (if you’re computer savvy) to work on a passive income online for four or five years before you retire so that you can still have some money coming in after you retire. This is a great post.

Rebecca Coale
Guest
Rebecca Coale

I have always planned for retirement, having started savings plans for it in my 20’s. I was one of the lucky ones, had an uncle who sold insurance so he advised me what to do. I feel sad for people who can’t retire when they need to because of finances. Personally I can’t ever imagine retiring, I love my job!

Jennifer
Guest
Jennifer

Fortunately I have few years to worry about it. My grandparents are set. It’s my parents, whose generation got caught up in the last three decades of financially irresponsibility, who have to worry.

Carrie
Guest
Carrie

I have many years yet before retirement but it’s good to be thinking along those lines, especially while raising kids and thinking about education costs too.

Sergei
Guest
Sergei

I’m glad I’m not retiring yet but it seems I should take advice like this immediately!! I’ve thought for a while now about the future and it definitely helps to have advice like this. It’s going to be very difficult for us young ones in the future but I think if I sort things out now then it might help me in time to come!!

Leo Jess
Guest
Leo Jess

I enjoyed this post. Sadly though I just recently retired and following the recent Wall Street pickpocketing of everyone including myself my retirement is not what I expected. I had been setting myself up to retire in Europe but now have to settle for Ecuador because it’s far more affordable. If I had it to do all over again I would not trust mutual fund brokers or financial planners. Had I of simply banked my money and get no interest I’d be ahead of where I am now, having trusted “financial experts”.

Tyler Jackson
Guest
Tyler Jackson

Will I be be able to retire in 2013? Definitely not. It looks like I will once again be pushing back my retirement. I am bitter because the reasons for my pushing my retirement back are due to the actions of others. But I deal with it. What else can one do?

Bev
Guest
Bev

With all this talk that’s been going around about Social Security and other things, I’ve been worrying if I’ll end up like one of those people that -have- to work to the day I die.

Kathleen
Guest

I am 33 and am already worried about retirement. I put 3% of my salary into a 401k and am working up to 6% since Wal Mart matches that. I also put money each pay into Walmart stock. It scared me that social security may be gone by the time I retire. It bothers me that my parents investments(cd’s ira’s etc) that once made 5% now make 1% and their Medicare is going up. Hopefully something will happen to stabilize this!

Charles M.
Guest
Charles M.

Oddly enough, when you’re young, retirement planning doesn’t sound too important, but as you get closer to retirement age, panic sets in and you do all that you possible can to try to catch up. Unfortunately, too many individuals simply can’t get enough into their retirement accounts and have to reset their goals, which means working past the date they had planned to retire.

John D.
Guest
John D.

As easy as it is, retirement planning seems to be the last on everybody’s list of financial “things to do”. Even our family has put it off and only done a small amount of work towards that all-important goal.

Erica Holloway
Guest

My father retired early, at 59 years old and is also struggling to stretch his pension. He doesn’t want to work part time becuase he said that it would reduce his pension payment by more than what he would be making! How does that work? Is this true? How can this be avoided or mitigated?

Jason
Guest
Jason

No matter how old or young you are, it’s never the wrong time to think about financial retirement planning and start a retirement savings plan. However, the earlier you begin the better off you will be. Chances are you will have a larger nest egg at retirement if you begin saving at 30 years of age instead of 60. With more years to invest your investment will have a better chance of recovering from any drops or bumps along the way. Financial experts say that nearly one-third of all Americans who are working have nothing saved for retirement… don’t be… Read more »

dcs5399
Guest
dcs5399

With pensions being drastically reduced or even going away, more seniors are starting to look into a reverse mortgage as another viable option in their retirement years.

Bill
Guest
Bill

Hi,

This is some really good information, it is always nice to see someone talking about the impact taxes can have on your retirement, both before and after you quit work. One thing that I always like to remind people is that for most people that have a good amount saved for retirement, but are unsure if they will have enough is to look at their current expenses and see what can be reduced. Often times you will find that you you can spend less money and get the same satisfaction by changing your spending habits.

Cheers,
Bill