What comes to mind when you think of retirement? Probably all the fun stuff you now have time for, such as traveling the world and enjoying your hobbies.
However, a lot of potential issues can cast a cloud over your golden years. While you cannot completely future-proof your retirement, there are some things you can do to make those years go as smoothly as possible.
Top 4 Retirement Challenges
The first step is identifying the most common issues that people face after they enter retirement. These are four of the most common ones:
1. You are unable to fund your pre-retirement lifestyle
There’s no upper limit to how much your retirement nest egg should be. But at the minimum, it should be 80% of your household’s pre-retirement income.
Let’s say you and your spouse have a median household income of $51,372 annually. At 80% of that amount, you will need approximately $41,100 in annual retirement income.
According to the Social Security Administration, the average Social Security income of a retired couple is $2,448 after being adjusted for cost of living. For individual workers, this amount drops down to $1,461.
If we go by those figures, a retired couple who has an annual income requirement of $41,100 will need $11,724 more than their annual social security income will provide in order to maintain their current lifestyle.
2. Your retirement savings are not enough due to longevity
When calculating how much to save for retirement, too many people fail to factor in longevity or projected lifespan.
Thanks to advances in modern healthcare, people on average can enjoy more than 20 years of life post-retirement. Of course, this will vary depending on when you choose to retire. Unfortunately, very few people are financially able to finance all of those years using their retirement savings alone.
Experts warn that even a $1 million nest egg may not be enough for two decades or more of retirement, especially when you factor in inflation, where you choose to retire, and longevity.
Retirees can end up financially distressed or needing more even with that much in savings. In fact, one study found that over 40% of Americans who were financially comfortable pre-retirement are at high risk of facing poverty during retirement.
3. You become stuck in low-paying jobs
Statistics indicate that many retirement-aged Americans are currently stuck in minimum wage or low-paying jobs. Additional research showed that once individuals hit 56 years old, their income declines up to 27% should they decide to take a new job after only a month of unemployment.
This has a domino effect. Low-paying jobs mean being unable to save large amounts for retirement. This inability will force you to work beyond the 65-year mark. The worst-case scenario is you’re forced out of a job and into retirement due to age and having no choice but to rely on government benefits to survive.
4. You fail to account for higher health care costs
One of the worst mistakes you can make when planning for retirement is failing to consider the rising costs of health care. This includes expenses like medications, treatment for chronic conditions, and nursing home payments.
Health care expenses can quickly drain your retirement funds. In fact, the number of seniors filing for bankruptcy due to medical debt is increasing at an alarming rate.
Practical Tips for Handling Common Retirement Challenges
Too many people skip saving for retirement because it’s not easy. You’ll have to make changes to your lifestyle right now in order to create a better retirement future, and this is a difficult thing to imagine – let alone accomplish – for many.
However, one thing is for sure: you will reach retirement age whether you want it or not, barring death.
The question is, what will your retirement look like? Will you end up destitute and trying to survive on very little, or will you be comfortable and able to enjoy your golden years?
The answer starts with what you do today. Below are some tips to help you protect your retirement:
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Work longer and save 20% of your income or more
This is one of the first things you should do, but also one of the hardest. If you’re 35 years old and younger, you’ll want to save at least 15% of your annual income. If you’re 35 years and older, the ideal amount increases to 20%.
You should also consider working longer. Recent trends indicate that more people are choosing to work longer instead of retiring early. This allows you to generate more income and increase your Social Security payouts.
According to the SSA, even one year of delaying your withdrawals can yield as much as a 108% increase in your monthly benefits.
Note that you don’t have to get stuck in the 9-5 grind to make this happen. You can actually transition to a part-time position to delay your social security withdrawals while remaining employed.
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Diversify your investments
Instead of investing all of your retirement funds in one place, divide them into different asset classes. For instance, diversify your portfolio with investments in real estate, stocks, bonds, private financing, precious metals, or even lien and mortgage investments. Ask a Financial Advisor for assistance.
Try not to tie up all of your savings in low-interest investments which can seriously diminish your money’s growth potential.
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Open a Health Savings Account (HSA)
You’ll begin receiving Medicare benefits when you’re 65, but don’t expect it to be enough for all of your healthcare expenses. Consider opening a Health Savings Account in addition to your benefits.
Aside from covering what Medicare can’t, it can also reduce your taxable income. To qualify for an HSA, however, be aware that you need a high deductible health plan. Not sure how it works? Consult an insurance agent that specializes in retirement.
Be Smart About Your Retirement Plan
It’s natural to be caught up in the bigger picture when saving for retirement. It’s pleasant to imagine everything you’ll be able to do once you’re free from the daily grind – exploring the world, relaxing, having a fuller social life and more. There’s nothing bad about having a vision, but you must be ready to put in the work.
Hopefully, you now have a better idea of the challenges you might face as a retiree. Carefully consider these elements and adjust your retirement goals accordingly.
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Tycoono Media Inc. and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial and accounting advisors before engaging in any transaction. Please refer to our disclaimer for more information.
