by Robert Laura
Original Post date: 1/15/2015

A common question from retirement savers is, “So how am I doing?” “How do I compare to others like me?” There’s not always an easy answer simply because there’s more to be looked at than the dollars signs at the bottom of a few statements. Here are five major factors investors need to consider when comparing their retirement plan with those of others.

Health and Family History:
No matter how much money one has, if they’re not in good health, it won‘t matter… at least not for very long. Personal health is a key retirement concern, along with the cost of healthcare insurance, prescriptions, and other associated expenditures.

If personal health or family health history suggest susceptibility to certain conditions or illnesses, you might need much more than the $220,000 that Fidelity suggests a married couple age 65 will need to cover healthcare costs throughout retirement.

Maintaining one’s health can quickly level the retirement playing field. Those with an exercise regimen, healthy eating habits, and the ability to manage mental stress may have a leg up on those who simply have more money in a company retirement plan or rollover IRA. While it may not be easily quantifiable, good health can pay major dividends by allowing you to spend more on things such as travel or toys for the grand kids, instead of doctor bills and co-pays.

Mortgage and Car Notes:
Statistics suggest that not having a mortgage payment is a major factor contributing to happiness in retirement. Apparently, being free from one of life’s biggest expenditures was not only a personal stress reducer but also made retirement savings go a lot further. That’s an important distinction in the retirement comparison analysis because, while one investor may have $100,000 or more saved than a counterpart, if they’re making mortgage payments during the first 10 years of retirement, that higher amount won’t be available for other things in retirement. In fact, it may not even be enough to cover those mortgage costs.

While those statistics didn’t include car costs as part of the equation, the same factors apply to retirees with auto loans. Those with a car paid off don’t necessarily need as large of a nest egg because $300-$600 a month won’t have to go towards an auto loan. Turning those numbers upside down, having a reliable paid-for car heading into retirement can equate to savings of nearly $25,000 or more over the course of a typical five year loan ($400 per month x 12 x5 plus interest). It’s one reason I recommend that those within 2-3 years of retirement consider addressing their housing and car cost situation before they retire. Too often, people wait until after they’re done working to purchase a new car or make a major home renovation. Frequently, that not only results in loan approval snags, it may incur a higher loan interest rate, or require a large distribution from retirement accounts, which can create unwanted tax issues while reducing the size of the overall nest egg.

Considering inheritance as part of a comparison with others’ retirement plans may be questionable, but it can play a role. It’s been my experience that inheritances don’t often provide as much as people expect. Even if they do, that bequest may come with qualifications and limits. Of course an inheritance can change people’s lives for the better as well. Large sums that appear unexpectedly and with no strings attached allow heirs to do as they please with the funds… yet those stories are few and far between and typically come as a surprise, not a fulfilled expectation.

On the other hand, fortunes willed to others can get tied up in courts for years; sibling and family relationships can disintegrate in the process, and high hopes crumble to bitter disappointment. The fact is, people change and often make adjustments to their estate plans. If you’re including an inherited family fortune in your retirement calculations, begin by cutting any estimate in half. That may be more realistic, but don’t be surprised if it’s less than that. Long-term care needs and medical bills have a history of draining family finances, particularly for those who aren’t prepared for the down side of old age.

When it comes to life expectancy, people are inherently bad judges. No matter how bad things may look health-wise for Great-Grandma or rich Aunt Sally, those with money proverbially seem to hang on 8-10 years longer than any doctor or family member expected. To paraphrase Kenny Rogers, “Never count their money while they’re still sitting at the table.”

One of the big benefits for many who are union members is the fact they will receive a pension. On the surface, receiving $1,000 to $2,000 per month from a pension may not seem as big or healthy as a 401(k) with $300,000 or $400,000 but a modest pension can, in fact, deliver much more than that, especially for those in good health and with a family history of outliving actuarial estimates.

Pensions can be complex, particularly for those about to retire and faced with the decision of how to take it. Options including life only, a survivor benefit for a spouse, period certain, or lump sum rollover can be confusing, but it’s a good problem to have. Technically, pensions are a fixed income source which can generally be counted on during retirement. That can be a big relief if the stock market turns negative… not to mention, it’s a predictable income stream that can be allocated to meet regular lifestyle needs. A pension, combined with Social Security payments, serves as a one-two punch that positions you well compared to others lacking those resources.

Business Interest
Whether it’s your own company, a major interest in a partnership or some other arrangement, the revenue your business generates can be a major source of retirement savings that doesn’t make it into enough retirement plan comparisons. This is particularly the case when married couples don’t understand the value of the business. It might be the actual business owner who doesn’t know how to estimate the company’s worth, or a spouse who feels they are behind in traditional savings but isn’t taking into account the value of the business as part of their future plans.

Oftentimes, companies sell at a multiple to their earnings. People are typically willing to buy cash flow, which means if a company generates $100,000 in revenue, and the going rate for such a business is 2.5 x earnings, the sale amount could equate to a quarter-million dollars ($100,000 x 2.5). While there is no static way to value the future sale of the business and other factors that may come into play, those who venture into the area of self-employment often have a built-in retirement savings plan that could equal much more than a traditional 401(k).

When it comes to answering the question, “How am I doing?” or “Where do I stand?” these five retirement planning guidelines can provide additional insight and comfort into how one really stacks up compared to those with traditional retirement accounts and savings.

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