This Is How Spending Changes in Retirement
Many people face challenges as they transition from working life to retirement. With 10,000 baby boomers retiring on any given day, it is vital that retirees address their spending habits and assess the amount of savings they will need to start drawing down in order to meet their everyday expenses.
Retirees generally become less risk tolerant
Risk tolerance represents the amount of risk that a person is prepared to take in order to obtain a return on investment. More aggressive investment tactics typically involve investing a higher proportion of assets in stocks and shares, which generally attract higher gains, while a more conservative strategy places a greater emphasis on fixed income products, such as bonds. Annuities can also make things more predictable, providing a guaranteed income stream.
Younger people tend to adopt a more flexible stance to investment risk, as they seek to grow their assets as quickly as possible, recognizing that they have time to recoup any losses.
However, in retirement most people prefer less risky options, since the savings that they have accumulated through work must see them through the rest of their lives.
Discretionary and essential spending evolves
With so many variables, it is impossible to say with any certainty how much a person’s discretionary and essential spending will change over the course of a 30-year retirement. Nevertheless, for most people, retirement prompts a significant shift in spending habits. With so much spare time on their hands, retirees often focus on their hobbies, travel, and time with their families, all of which can trigger higher spending.
By their 80s, most people see their spending habits evolve further, with issues such as healthcare becoming a priority.
Healthcare costs increase
The average healthy 65-year-old couple would need more than $404,000 in retirement savings to meet their healthcare deductibles, premiums, dental, hearing, and vision expenses, according to statistics published in the HealthView Services Retirement Health Care Costs Data Report in 2017.
Healthcare is one of the largest expenditures for virtually all retirees, commanding a significant portion of their annual budget.
Benefits of Malta Pension Plans
Through tax-deferred retirement savings accounts, including 401(k)s and traditional IRAs, investors realize tax savings when making contributions. The drawback is that when investors start to make withdrawals, they must pay income tax on their distributions at the ordinary rate.
Malta Pension Plans are an increasingly popular retirement savings vehicle, conferring significant benefits over traditional types of pension plans. From a federal perspective, a Malta Pension Plan is essentially treated as a foreign grantor trust. Appreciated assets can be contributed to a Malta Pension Plan without triggering tax consequences. Significant distributions from a Malta Pension Plan may be tax-free.
Malta Pension Plans offer not only vast tax-savings potential, but also enhanced flexibility, conferring the ability to contribute non-cash assets such as works of art, real estate, or business interests without liquidating them first. In addition, with a Malta Pension Plan, retirees benefit from the ability to draw an initial lump sum payment of up to 30% of the pension plan’s value at the age of 50 without incurring penalties or tax liabilities.
