My grandparents used to talk about their "fantasy retirement" in Florida which eventually became a reality. Most of my Generation X peers don't have a fantasy retirement in mind because retirement itself is a fantasy that may never happen. A recent article by MainSt pointed out more people may rely on Social Security if lawmakers reduce incentives to contribute to employer-sponsored plans such as 401(k). Although lawmakers may be toying with different ideas, most people object to changing the current tax treatment of different retirement savings vehicles. The article cited a study by the Coalition to Protect Retirement that indicated 87 percent of the general public and 95 percent of those who have a tax-deferred retirement plans don't want lawmakers to tinker with the way it is. To have a shot at a retirement fantasy that doesn't involve working until I'm 80, I have to educate myself about all the options.
Considering my tax situation
I used to invest in a regular 401(k) to lower my tax bite, but I'm switching to the Roth 401(k) because of the changes to my health insurance. I will be paying more for health insurance next year through my employer-based health plan, which might seem bad. But on a positive side, it lowers my taxable income just as investing in a 401(k) used to do. According to a new poll by HealthPocket 47 percent of Americans surveyed wanted premium payments to buy health insurance on their own to be tax free as it is for those of us with employer-based health plans. If I do become self-employed in the future, it would be an even greater hardship to pay for health insurance because the health insurance payments wouldn't be excluded from my taxable income.
Having realistic expectations
According to the Future of Retirement Income study by Genworth cited by MainSt, almost half of retirees left the workforce sooner than they expected. Thirty-six percent cited job loss, while 17 percent had health problems. I want my expectations for retirement to match reality so I'm preparing for an increase in living expenses in retirement due to unpredictable healthcare and other costs.
Controlling what I can control
Although I can't control the fact that Social Security benefits might dramatically shrink by the time I retire in another 25 to 30 years, I can control my housing situation. According to the Genworth study, retirees found their real estate expenses rose 26 percent in retirement. We live in a modest home in a 10-year-old Florida subdivision. If we can stay put in retirement, it's unlikely we will see much of an increase in our property taxes. Even if our property taxes go up, we will not have a mortgage. I'll be happier working in retirement if I'm able to do it out of my paid-off home.
If retirement is defined as no longer working, it's possible I'll never partake in its promise of late-night bingo games and afternoon tea parties with the Red Hat Society. To be more financially secure, I have a simple retirement plan to pay off my home and save as much as I can in a Roth 401(k) or Roth IRA. Working will just have to be part of my fantasy retirement if I'm fortunate enough to have work.
More from this contributor:
- Investing Education
- Retirement Benefits