Do you have big dreams for retirement? If the dreams include things such as traveling to fun places, winter in warm spots, some golf and spoiling the grandkids, then you'd better have a budget to match.
A survey by Ameriprise Financial of people ages 50 to 70 showed that 72 percent hope their retirement includes fancy toys and expensive vacations, but only 38 percent are confident they will be able to afford this kind of life.
"There is a very big disconnect between what people hope that they are going to be able to do in retirement and what they are likely to actually be able to do," says Suzanna de Baca, vice president of wealth strategies for Ameriprise.
Ameriprise has the usual suggestions for fixing this. These include figuring out what your dreams will cost, creating a plan, and buckling down to save or earn what it will take to turn the plan into reality. But even if you do everything right, retirement planning is still a crapshoot. De Baca calls this "the certainty of uncertainty."
Is there anything you can do to tilt the odds in your direction? Ameriprise has three suggestions.
Pay off your mortgage. If you own your home free and clear, you will have a lot more money-management flexibility.
Get a grip on health care costs. Health care is likely to be the biggest expense that any of us will face in retirement, and according to Ameriprise Financial, health concerns are the biggest fear of 53 percent of those surveyed. The Employee Benefit Research Institute calculates that by 2020 a 65-year-old married couple without retiree health insurance and with median drug expenses will need between $365,000 and $454,000 to pay for Medicare Part B and Part D premiums and out-of-pocket drug expenses, plus a Medigap supplemental insurance policy. Understanding what Medicare costs and what it pays and earmarking money to pay those bills as you face them will give you important peace of mind.
Understand the impact of inflation. Historically, inflation is about 3 percent a year, which means the cost of living doubles in 24 years. While Social Security is indexed for inflation, pensions and fixed annuities usually aren't. If you don't want to run out of money, it's important to figure out where the money to pay these rising costs is going to come from.
These steps sound simple enough, but figuring out how to take them isn't. If you can't see your way clearly, get some expert help. In the long run, it will be money well-spent.