27 Ugly Truths About Retirement
From managing unexpected medical costs to helping adult children, Americans often face costs they never expected in their golden years. It is also more difficult to save for retirement today than it was 50 years ago.
According to a 2019 TD Ameritrade survey, over 30% of Americans plan to continue working after they retire. If you're not sure how long to work or what to expect when you retire, find out the hard truths so you can figure out when to retire.
Last updated: February 14th, 2020
1. Part of your investment success is left to chance
What happens in the market in the 10 years before and after your retirement can play an important role in how well your portfolio is financed.
"It is difficult to replace lost money during this time, either due to time constraints or lost earnings," said Patrick Daniels, director of financial planning for Precedent Asset Management in Indianapolis.
In order to protect your retirement assets during what Daniels called the high-risk window, he suggested that individuals "take a conservative approach to their investments".
2. But you can still invest too conservatively
Avoid potential investments like stocks, and you could make a retirement mistake and live up to your lifestyle, said Joseph Carbone, certified financial planner and founder of the Focus Planning Group in Bayport, New York.
"Retirees should try to invest in total return strategies that focus on stock appreciation - especially dividend-producing stocks - and good quality bonds that don't have long terms," said Carbone. "Many of my retired or nearing retirees have a 60% equity allocation and a 40% bond allocation, with a focus on dividend-generating equities and bonds that are less than six years old."
3. You may not save enough
According to a recent GOBankingRates survey, 64% of Americans saved less than $ 10,000 in retirement. Even if you plan to spend your golden years modestly, this dollar amount will not be cut nearly. Matt Ritt, a certified financial planner and investment advisor to the Questis Financial Wellness Benefits program for employees, suggested that investors "start saving as early as possible".
He advised investors to use accounts 401 (k), 403b and IRA and to maximize contributions where possible. To find the means, "limit your spending and stick to a reasonable spending schedule," said Ritt.
4. Whether you are young ...
More than half of millennials saved $ 0 on bank retirement, according to the GOBankingRates survey.
This is also a shame, because the younger you are, the greater your potential to raise your nest egg through the power of compound interest. Save just $ 200 a month by the age of 25, and could incur $ 621,735 by the age of 65, provided you get 8% return.
5. ... or if you are older
Unfortunately, baby boomers - the group closest to retirement age - are not doing much better.
According to the GOBankingRates retirement survey, 30.7% of those over 55 have a retirement credit of less than $ 50,000, which is considered insufficient for those approaching their golden years. Late savers may have to make up their old age contributions - or even postpone retirement by a few years.
6. You will probably live longer than your people, which costs more
The average life expectancy in the United States today is 78.6 years, according to the Centers for Disease Control and Prevention. And the ugly truth about retirement is that the longer we live, the more we have to fork out to fund our extended golden years.
"With Americans living longer than ever, it's no surprise that their main concern is surviving their income," said Jim Poolman, executive director of the Indexed Annuity Leadership Council. "But the good news is that there are solutions to surviving earnings, such as finding products that offer guaranteed lifetime income - such as fixed indexed pensions."
7. You could lose if you misjudge your social security benefits
Start using social security benefits before you reach full retirement age and you will permanently reduce your monthly payment. Wait until the age of 70 and you will receive more money with every check.
However, this does not mean that a strategy is always the best, especially if you take into account spouse and survivor benefits. Fortunately, there are several social security optimizers that can help you determine the best time to take advantage of social security benefits, such as: B. Quicken's social security optimizer.
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8. You might regret having skipped your Roth contribution
The younger you are, the more you can benefit from Roth accounts, since they are financed with after-tax dollars that generate tax-free investment income throughout the investment, said Ritt. This makes it a great option if you expect a higher tax rate when you retire than you do now. By tapping your Roth account in front of your taxable account, you will reduce the amount of money distributed to which you pay tax for this year.
9. You have to take into account numerous financial problems
"Those who are nearing retirement and those who have just started retiring face the challenge of planning cash flows for their new lifestyle," said Scott Smith, certified financial planner at Olympia Ridge Personal Financial Advisers in Rochester Hills, Michigan.
Before tapping your IRA or brokerage account, Smith suggested creating a five-year cash flow plan that should take into account the tax implications of the distribution of pension, annuity, social security, retirement, and even available part-time income.
"Often these decisions are made without taking tax efficiency into account, and the pensioner ends up paying more taxes than he really needs," said Smith.
10. You will probably need to supplement your Medicare
Medicare does not cover many procedures, including dental, hearing, vision, and long-term care in an assisted living or care facility. Many pensioners are also faced with unexpectedly high deductibles and additional payments.
"The best solution is to include unexpected medical expenses in your budget as you build up your retirement assets," said Joshua Zimmelman, president of Westwood Tax & Consulting. You can also "enroll in a Medicare supplementary insurance plan that helps pay for co-payments, deductibles, co-insurance, prescription medication, and medical care when traveling overseas," he said.
11. Your health care costs more than you expect
According to a Fidelity report, the average married couple who will retire at age 65 in 2019 will spend $ 285,000 on retired medical expenses. And Medicare does not cover all of these costs.
"A Health Savings Account (HSA) can be of great help in preparing for these retired health costs," said Jody Dietel, chief compliance officer at WageWorks Employee Benefits Provider. In conjunction with a high deductible health insurance plan, HSA contributions are made tax free, the remainder is tax free, and withdrawals are made tax free, Dietel said.
"The account can build a healthy nest egg that prevents you from having to deduct from your 401 (k) for the unforeseen healthcare costs," said Dietel.
12. Most people need long-term care
According to the U.S. Department of Health, approximately 70% of those over 65 need long-term care at some point in their lives. "The cost varies by state, but three years can easily make you $ 300,000," said Mark Struthers, certified financial planner at Sona Financial in Chanhassen, Minnesota.
To protect against these likely costs, Struthers suggested that pensioners take out long-term care insurance that was designed to cover long-term costs - such as qualified care, assisted living, and hospice care.
13. Your overall health affects your retirement costs
Regular physical activity and activity can help you treat and prevent chronic diseases that are expensive to treat, according to the CDC. You can find sample exercises and nutritional information for retirees and retiring people at the National Institute on Aging.
14. Inflation can eat your nest egg
In the United States, inflation has been largely low over the past 25 years thanks to strategic measures by the Federal Reserve. As anyone who has experienced sky-high inflation can testify, 10% inflation per year can occur.
Inflation "can be devastating for pensioners," said Struthers. "If we have been retired for 30 to 40 years and have a fixed income stream, purchasing power can easily be reduced by 60 to 70%."
To counter the effects of inflation, Struthers suggested investing in inflation-sensitive assets such as inflation-protected Treasury bills (TIPs), I-bonds, and real estate.
15. You don't know exactly how much you are spending
You should know exactly how much money you are spending - but if you don't, you are not alone.
"Over half of the people I speak to and who are preparing to retire have a poor understanding of how much they spend and where they are going," said Daniel P. Johnson, certified financial planner and founder of Forward Thinking Wealth Management in Akron, Ohio.
Pensioners need to know this information because they are using their investments to bridge the gap between what is going on and what is coming in through their pension and social security plans.
"There is a big difference when you assume that you will need an additional $ 20,000 annually from your investments to close the gap, rather than actually spending $ 50,000," said Johnson.
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16. Your child can borrow for college, but you cannot borrow for retirement
Many parents are stuck between wanting to help their kids pay for college and saving for retirement, said Sally Brandon, senior vice president, client, and advisor to Rebalance IRA. "However, it doesn't help to put a lot of money into a college fund if your retirement savings suffer," she said.
Instead, Brandon suggested setting a budget for what you can afford to pay for college.
"Tell your child what part you can afford," she said. "If you have extra money after putting away what you need to retire, so much the better."
17. Your employer may not help you prepare
Not all employers offer a 401 (k) or similar plan. "While a 401k is a great retirement tool when it is available, other options are available," Brandon said. For people without an employer-sponsored plan, she recommended setting up an automated payment plan to fund a Roth IRA.
“A Roth IRA helps you to save for both emergencies and retirement. Money that you paid in as a contribution can later be deducted tax-free, ”Brandon said. "The account can also act as a estate planning tool and is generally more tax efficient than a traditional IRA."
18. You could spend too much on housing ...
An American Financing poll found that 44% of Americans aged 60-70 years have a mortgage when they retire, according to the Chicago Tribune. "Some retirees are even enlarging their homes," said Cary Carbonaro, a certified financial planner at United Capital in New York and New Jersey and author of "The Money Queen's Guide: For Women Who Create Wealth and Banish Fear."
A strong mortgage payment can significantly affect cash flow, especially for people with a fixed income. "It's always a good idea to reduce your costs by downsizing," said Carbonaro. "Taxes, utilities and maintenance costs almost always increase."
19. ... or you could be poor
On the other hand, repaying your mortgage may not be the best solution if you don't have enough retirement savings.
"If most of your wealth is tied up in your primary residence and retires, it can be difficult to find a good solution that will help you maintain your desired lifestyle, especially if you want to stay at home," said Taylor Schulte. Founder and CEO of San Diego-based commission-free financial planning company Define Financial.
Schulte suggested reducing and using part of the equity to fund your retirement. "Many people in this situation have a home that is far too big for their needs anyway," he said.
20. You may need to move
Depending on where you live, you may consider moving to a location where your retirement benefit continues. For many people, especially if they are concerned about retirement, this can significantly reduce costs. It's also an opportunity to move into a more attractive climate or to approach grandchildren and like-minded transplants.
21. You may need to work part-time
Some older Americans recognize the physical and mental health benefits associated with an active mind. Others simply cannot afford to retire. Regardless of whether you are over 67 years old as required or at your choice, one thing is certain: the additional income can help to strengthen your nest egg in retirement.
22. Your adult children could derail your pension plans ...
Cutting the kids off could be a necessary step if you want to retire. According to a report by Merrill Lynch and Age Wave, 79% of parents continue to support their adult children financially.
For many Americans, middle age is also the main income age, and ideally when savers should have the most disposable income to strengthen retirement accounts. Funding a loved one financially during these years can have a serious impact on your retirement assets.
Benjamin Brandt, a certified financial planner and president of Capital City Wealth Management in Bismarck, North Dakota, suggested converting a Plan B option into a pension plan. For example, if you suspect that your child has a boomerang at home, "a proactive rather than a reactive response always leads to better results in retirement," he said.
23.… how your aging parents could
Most adult children are unwilling to withhold parent support, so Brandt suggested that workers plan ahead if they expect these costs.
"If a customer believes that they are likely to look after a parent, they could draw up an emergency plan," he said. You could switch to part-time work earlier than expected, Brandt said, or maybe even work longer if excess funds are needed more than excess time as a caretaker.
24. Or you could get trapped between the two generations
According to a 2015 survey by TD Ameritrade, around 20% of adults support either their adult children, their own aging parents, or both.
"This phenomenon is so common that it has a name: the sandwich generation," said Brandt.
With the support of loved ones, many people sacrifice their own ability to save for retirement. According to the TD survey, around 30% of sandwich workers admit that they barely have enough money to get through.
25. You need to talk to your children about your end-of-life care decisions
Nobody wants to think about their own mortality, but according to the National Institute for Aging Research, it's best to discuss end-of-life care preferences long before the onset of illness.
Individuals should consider when to take life-extending measures, where to look after them, and what to do if they are physically unable to take care of themselves. One ugly truth about retirement is that these are the years when these decisions need to be made, and it's best to talk to your loved ones - and your doctors - about your desires.
26. You need to discuss your asset transfer plans
Even for people with a modest inheritance, it is often difficult to start the money talk, especially if you are not sure how your future heirs will respond to the news of an upcoming windfall. Some children feel guilty about having an undeserved financial blessing and waste the money. Others can misinterpret your intentions. "Did Dad love my sister more than me?" can be a common phrase among children of the deceased.
To avoid misinterpretations, talk to your future heirs so that they understand the reasons for your decisions and can prepare yourself emotionally.
27. You need to look into your funeral schedule
Many people don't feel comfortable talking about death, said Veronica Reyes, site manager at the Cremation Society of Virginia in Richmond, Virginia. Avoiding the topic, however, can cause bigger problems, especially if you wait until your health is compromised.
"If you now consolidate your funeral or cremation plans with a cool and clear head, you can set a fixed price," said Reyes. "Your loved ones don't have to worry about being burdened with confusing decisions and unexpected funeral expenses."
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Taylor Bell contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: 27 Ugly Truths About Retirement
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