Transportation costs in retirement

I present a workshop on Life without driving for seniors in BC, to help people make the decision to retire their car. One of the best reasons for retiring your car is the expense of driving a car.

Transportation accounts for 16% of annual spending by Americans 65 and older, according to the Bureau of Labor Statistics. Only housing takes a higher percentage of annual spending. That means transportation spending exceeds medical spending and taxes.

Keep in mind, these are aggregate statistics so the percentages may be different for you.

Transportation costs include vehicle purchases, finance charges, gasoline, oil, insurance, maintenance, repairs, public transit, taxis, rentals and leases and the list goes on

Of course, many of us purchase our last car before we retire, or many of my friends did, so the largest annual transportation cost for those 65 and older is gasoline and insurance.

The cost of buying or leasing a new vehicle often surprises retirees. They don’t buy a new car every year, so it often isn’t factored into retirement spending plans. Many also remember their parents owning the same cars through their senior years and assume they, too, won’t need new transportation.

If we are lucky and healthy, our retirement can last for over 30 years, so the purchase of a new or used car is a strong possibility. There is a possibility that you also could be driving less than you drove during the career years.

In your retirement planning, the best way to incorporate transportation costs is to turn vehicle purchases into an annual budget item.

One way to do that is to determine the monthly cost of leasing a vehicle similar to what you now have or would like to have next. Include that amount in your monthly spending estimate.

Another method begins with estimating how often you will replace a car in retirement.

Let’s say you’ll replace every five years and it costs $20,000 today. If you assume 3% inflation in the vehicle price, it will cost a little over $26,000 in five years. Divide $26,000 by 5 to arrive at $5300 per year. Divide by 12 to arrive at $442 for your monthly cost of acquiring a vehicle.

You might not spend the money until you need the vehicle, and you might pay in a lump sum. But adding the cost of your spending estimate through one of these ways ensures you’ve accounted for new vehicles in your spending plan, and created a cushion so that the money is available when you need to buy a vehicle.

Some people approaching retirement are paying leases or auto loans, so they should assume those costs will continue as part of their monthly expenses in retirement. But factor in inflation. The cost of buying or leasing a vehicle is likely to increase over the years.

Vehicles are important to retirees. They’re important emotionally as a sign of independence. They’re also important as a practical matter, because 79% of those 65 and older live in areas where cars are a necessity or close to it, according to a group called Transportation for America.

After budgeting for transportation costs, consider ways to reduce the cost of transportation in your retirement spending.

As people age, they also take fewer trips and drive less. At some point, you might consider eliminating a car from your life, even when you don’t live in a center city area that has everything within walking distance.

There are often options such as taxis (and similar businesses), public transportation, and car pooling with friends. There might also be a bus or shuttle service for seniors through your local government or a charitable organization.

You give up the convenience and spontaneity of being able to jump in the car whenever you want. But you save a lot of money by not owning or operating a car. When you’re not leaving the home on a daily basis for work or other activities, not owning a car can be a smart financial move. At some point, it also becomes safer.

Boomer Expectations for Retirement 2016

 The following is from the Sixth Annual Update on the Retirement Preparedness of the Boomer Generation A report by the Insured Retirement Institute.

The Institute is the leading association for the retirement income industry. IRI proudly leads a national consumer coalition of more than 30 organizations, and is the only association that represents the entire supply chain of insured retirement strategies

OVERVIEW

There are about 76 million Baby Boomers in the United States, more than 40 million of whom are already age 65 or older. As a generation, they have shaped and altered every life stage they’ve moved through, and their sunset years promise to be no exception. They will retire at a rate of 10,000 per day through at least 2030, when almost 73 million Americans, comprising more than 20 percent of the U.S. population, will be age 65 or older.

Approximately 35 million Boomers lack any retirement savings today, a statistic that appears to only be getting worse. The grim legacy for many Boomers, after long working lives spent caring for families, putting children through college, and perhaps caring for their own parents, will be to struggle financially in retirement as they live long lives, exhaust their limited financial resources, and find that their only income in their later years is a Social Security benefit that may be largely consumed by expenses for health care.

Millions of Boomers who lack sufficient savings to live comfortably in retirement need strategies. Those with little or no savings will need to work longer or transition to part-time employment –if they can and if it’s available. They also will need to lower their expectations, and downsize significantly or they risk exhausting what financial resources they do have. The next 20 years may bear witness to some interesting and creative solutions for Boomers.

For those with moderate savings, these Boomers will need advice and guidance to ensure their limited financial resources are not exhausted during what may be a 25-year retirement, or even longer. And even those who have adequate retirement savings will need guidance as they transition to the de-cumulation stage to ensure their savings can appropriately help them reach their retirement goals, which may include legacy considerations.

Key findings: 

·       The percentage of Baby Boomers who are satisfied with how their lives are going from an economic perspective has fallen to 43 percent, the lowest level since 2011.

·       21 percent of Boomers plan to retire prior to age 65, and 59 percent at age 65 or older. This includes 26 percent who plan to retire at age 70 or later.

·       Boomers are less confident than they were five years ago about almost every aspect of retirement:

·       Only 24 percent of Boomers are confident they will have enough savings to last throughout retirement, versus 36 percent in 2012.

·       22 percent believe they are doing a good job preparing financially for retirement, versus 41 percent in 2012.

·       27 percent believe they will have enough money for health care expenses, versus 37 percent in 2012.

·       16 percent believe they will be able to pay for the cost of long-term care, versus 24 percent in 2012.

·       Boomers who lack confidence in their retirement plans, when asked what they would have done differently: 68 percent said they would have saved more and 67 percent said they would have started saving earlier.

·       Only 39 percent of Boomers have tried to figure out how much they need to have saved for retirement. Of those who have, a third did not include health care costs in their calculations.

·       Only 55 percent of Baby Boomers have money saved for retirement, down from 58 percent last year and from more than three in four in prior years.

·       On average, Boomers’ estimate health care costs will consume 23 percent of their income in retirement, compared to the 33 percent of income those aged 60 or older currently spend on health care.

·       A greater number of Boomers have stopped contributing to retirement accounts (30 percent), have found it more difficult to pay their mortgage or rent (30 percent), and have taken premature withdrawals (16 percent) than in recent years.

·       Boomers citing Social Security as a major source of retirement income jumped to 59 percent, versus 42 percent five years ago.

·       Only one in four Boomers expect significant income from an employer-provided pension.

·       Unsurprisingly given low or no retirement savings, an even bigger drop is observed in those citing a defined contribution (DC) plan as a major source of income, to 23 percent from 34 percent in 2014.

·       60 percent of Baby Boomers believe their retirement income will cover basic expenses as well as at least some travel and leisure, yet only 55 percent have retirement savings.

·       One in five Boomers are worried they will not have enough savings for basic expenses.

·       Only 46 percent of Boomers think it is very or somewhat important to leave money to heirs, as compared to 63 percent who believed this was important five years ago, indicating that as Boomers move closer to, and into, retirement they are discovering it may not be realistic to plan to leave money to heirs. Conversely, 67 percent of GenXers believe it is important to leave an inheritance.

·       More than eight in 10 Boomers who work with financial professionals believe they are better prepared for retirement as a result of that relationship.

·       At least nine in 10 Boomers who work with a financial advisor have retirement savings, a measure which has remained above 90 percent since the inception of the study in 2011.

·       Among the 55 percent of Boomers with retirement savings, 58 percent have saved $100,000 or more for retirement. When Boomers work with financial advisors this increases to 78 percent.

·       More than seven in 10 Boomers plan to downsize and subsist on Social Security alone if they run out of money in retirement, and about half would try to return to the workforce.

·       Seven in 10 Boomers with an annuity have saved at least $100,000 for retirement.

·       60 percent of Boomers prefer to meet with a financial professional in person, and 62 percent are very or somewhat unlikely to use a robo-advisor.

·       Divorce is impacting Boomers’ retirement plans: 24 percent of divorced Boomers are, or expect to be, worse off in retirement than if they had not divorced.

·       When thinking about retirement in their 80s and beyond, Boomers are more worried about changes to Social Security (65 percent) than running out of money (55 percent), highlighting the importance many Boomers place on Social Security in the absence of other income sources.

·       74 percent of Boomers have taken at least some action to plan for cognitive impairment, versus only 42 percent last year, though the most common was to have “made a written record of wishes.” More concrete steps, such as documenting assets or appointing a conservator, were undertaken by less than one-third.

Planning for retirement is important

On this last Sunday in July, I reflected on an interesting article I read by Linda Alessi, on planning for retirement. She made the point that many of us leave retirement to chance. We don’t plan, for it. I know I was in that mind set. I just retired, realized I was not ready and went back to work, part time for six more years before I fully retired. However, many of my friends planned for retirement and when it came they were prepared. Unfortunately, many do not use any method of planning when it comes to retirement. We just leave it to chance. The preparation is not always thought necessary. Upon reflection of how I handled my retirement I believe planning is very important when considering this next phase of your life.

We are in the last episodes of our lives. Behind us we have lived and experienced growth, maturity and hopefully security. If, in fact, we have come to this time in reasonably good health, here is the opportunity to do some things we have put off until retirement. This means we should continue to enjoy life along the way, in all stages, but we should make time to cultivate more interests that we can start when we retire.

Men have worked most of their adult lives and we dream about when we retire. We dream about having more leisure time to play golf, go fishing find hobbies. These activities should not put off until retirement if they can do today. Sometimes retirement comes, and there is no time left to enjoy life. Leisure time does not mean to become stagnant or inactive or a recluse. This time for many is a period of self-evaluation and exploration.

Women have worked most of their lives holding down jobs and careers while carrying most of the load and the responsibilities of keeping a household, raising children and helping to her partner. 

This new era of retirement brings an unfamiliar setting with time available and a sense of new freedom.  They also need to prepare. It is easy to become lethargic and bored with much of our role, as it diminishes through the years. When changes occur and our lives are altered, it is more difficult without having some resource to turn to and embrace.

There has been adjustment through all stages of our lives.  Most of the time we come through with ease.  When people find themselves alone, either through the loss of a mate or a change in their personal status, the adjustment may be traumatic and takes some time.

I feel I am most fortunate as I have sought out many interests that have sustained me. After initially failing retirement, I have gone to “the well” for refreshment. The days of responsibility for the family have lessened. Although I am loved and love my children, they have received the tools to become their own person and have made lives for themselves following their own particular dreams. They are successful human beings involved with life and people and take an active part in living their chosen lives.

The refreshment I speak of relates to the ability to be able to do some of the things I had dreamed about for many years. To be able to give time in service to the community gives me s sense of fulfillment. To be able to sit at my computer and put on paper my thoughts and experiences is a labor I truly enjoy. I truly feel lucky to have come to this stage of my life with its peaks and valleys and still maintain a desire to be inquisitive and involved with the world around me.

I believe it is necessary to be interested in where you are and who you are in every stage of your life. It is healthy and certainly helps to maintain a relationship with your peers. Most of us need to connect to others at some time; others need to be connected all the time, as I do in my time.

Summer is half over, where did time go?

Summer is half over, and you have A LOT of important stuff to do today and this week, this summer, this year. The most important of which is to remind yourself not to go it alone. 

Leverage your friends and engage the magic.