Retirement and the Fiscal Cliff

With all of the talk about the fiscal cliff lately you might be wondering how your retirement would be affected if the fiscal cliff does actually happen.  The fiscal cliff generally refers to the tax cuts that will expire and the automatic spending cuts that will kick in if Congress is not able to reach an agreement on how to avoid them by December 31, 2012.

The stock market has already sustained losses due to the uncertainty surrounding the fiscal cliff.  If the fiscal cliff isn’t avoided it is likely the stock market will go down even further.  This would result in many people seeing the values of their IRA or other retirement plans go down. Other concerns are that if an agreement is reached that it will contain reductions in Medicare and/or Social Security or a boosting of the age requirement for filing for Medicare and/or Social Security benefits.  It is clear that something needs to be done but many people are not financially prepared for any reduction in either Medicare or Social Security benefits.

It seems unlikely that the age requirement will be raised now but it is still a distinct possibility for the future.  It would be wise to make your retirement plans assuming that your benefits will be reduced and/or delayed.  If that doesn’t happen then you will have a nice bonus amount in your retirement savings.  If benefits are reduced and/or delayed and you haven’t budgeted for them then you will be in a financial pickle and looking at a reduced standard of living in your retirement years.  Or you could possibly delay retirement, assuming that you are still in good enough condition to continue working.

A more likely outcome of the fiscal cliff negotiations is that Medicare premiums will rise significantly. When preparing for retirement you need to set aside extra money for health care expenses.  Unplanned for medical expenses could easily derail your retirement plans.  It is also smart to get into shape to help reduce your chances of having health complications.

Whether we go off a fiscal cliff or not changes will likely be made in the future that will put more of the financial burden of retirement on retirees. Prudent retirement investors will increase their retirement savings or make other plans to address higher Medicare premiums and reduced Social Security benefits.