Some Harsh Retirement Realities

Americans frequently find themselves with expenses they didn’t anticipate in their golden years, from dealing with unforeseen medical expenses to supporting adult kids. It’s also more challenging to save for retirement now than it was 50 years ago.

According to a 2019 TD Ameritrade poll, more than 30% of Americans want to keep working after retirement. If you're unsure about how long you'll have to work or what to expect once you retire, learn the harsh realities so you can decide when to retire.

1. Some of your investment outcomes will be dependent on luck

What happens in the market in the ten years leading up to and following your retirement date can significantly impact how well-funded your portfolio is.

“It's hard to replace lost money during this critical period, either due to time restrictions or the loss of earned income,” says Patrick Daniels, a financial planner with Precedent Asset Management in Indianapolis.

To protect your retirement funds during the "high-risk window," Daniels recommends that you "take a cautious approach with your investments."

2. However, you may still invest too cautiously

“If you avoid high-potential assets like stocks, you risk making a mistake in retirement and outspending your lifestyle,” according to Joseph Carbone, a certified financial planner and founder of Focus Planning Group (Bayport, New York).

“Retirees should seek total return-type strategies that emphasize stock appreciation – especially dividend-producing stocks – and high-quality bonds with shorter maturities,” says Carbone. “Many of my retired clients or those nearing retirement have a 60% stock/40% bond allocation, focusing on dividend-paying stocks and bonds with a term of fewer than six years.”

3. Maybe you’re not saving enough

A recent GOBankingRates survey found that around 64% of Americans had less than $10,000 saved for retirement. Even if you want to live simply in your retirement years, that sum will not be enough. Questis' Matt Ritt, a licensed financial planner, and investment advisor advised investors to "start saving as soon as possible."

Ritt also encouraged investors to maximize contributions to 401(k), 403b, and IRA whenever possible, taking advantage of those accounts. He said to limit your costs and stick to a reasonable budget.

4. If you’re younger…

More than half of Millennials have no retirement savings, according to the GOBankingRates survey.

That's a pity since the younger you are, the greater your potential to increase your nest egg via the power of compound interest. If you start saving $200 a month at the age of 25, you could have $621,735 by age 65, assuming an 8% annual return.

5. …Or if you’re older

Unfortunately, Baby Boomers, the generation closest to retirement, aren't doing any better.

A GOBankingRates retirement survey found that 30.7% of adults over age 55 had retirement savings of less than $50,000, which is deemed inadequate for those nearing their golden years. Late savers may have to make up for lost time with their retirement contributions – or even postpone retirement for a few years.

6. You will likely live longer than your parents, which will cost more

The average life expectancy in the United States now is 78.6 years, as reported by the Centers for Disease Control and Prevention. And the unfortunate reality of retirement is that the longer we live, the more we have to pay to finance our prolonged golden years.

“With Americans living longer than ever before, it's no wonder that outliving their income is their top concern,” said Jim Poolman, executive director at the Indexed Annuity Leadership Council. However, there are options for outliving income, for example, considering products that provide guaranteed lifelong income, like fixed indexed annuities.

7. You could lose out if you don’t time your Social Security benefits correctly 

If you begin receiving Social Security benefits before reaching full retirement age, your monthly amount will be reduced indefinitely. If you wait until you're age 70, you'll get more money with each check.

However, that doesn’t mean one strategy is always superior, especially when you take into account spousal and survivor benefits. Fortunately, numerous Social Security optimizers available, like the Quicken Social Security Optimizer, can help you determine the ideal timing to begin receiving Social Security benefits.

8. You may regret not making your Roth contributions

“Roth accounts are established with after-tax money, so investment profits grow tax-free throughout the life of the investment. Hence, the younger you are, the more you may benefit from them,” according to Ritt. As a result, they are an excellent choice if you anticipate paying a higher tax rate in retirement than you do today. By withdrawing cash from your Roth account before your taxable account, you reduce the amount of distributed funds you'll have to pay tax on that year.

9. You’ll have to consider several financial issues

“Those approaching retirement and those who have just begun retirement have the challenge of managing cash flows for their new lifestyle,” says Scott Smith, a CFP at Olympia Ridge Personal Financial Advisers in Rochester Hills, Michigan.

Smith advised developing a five-year cash-flow plan before tapping your IRA or brokerage account, which should account for the tax implications of distributing from your pension, annuity, Social Security, retirement savings, and even possible part-time income.

“Frequently, these decisions are made without regard for tax efficiency, and the retiree ends up paying more in taxes than they actually need to,” he said.

10. Your Medicare probably won’t be enough

Medicare doesn’t cover many procedures, such as dental, hearing, vision care, and long-term care in an assisted living or nursing facility. Many retirees are also confronted with surprisingly hefty deductibles and copays.

“The ideal solution is to prepare for unexpected medical expenses while you grow your retirement funds,” says Joshua Zimmelman, founder of Westwood Tax & Consulting. “You may also enroll in a Medicare supplemental insurance plan that can help to pay for co-payments, deductibles, co-insurance, prescription medications, and medical treatment when traveling abroad,” he added.

11. Your healthcare will be more expensive than you think

According to a Fidelity report, the average couple retiring at age 65 in 2019 will spend $285,000 on medical expenses in retirement. And Medicare won’t cover all those expenses.

“When it comes to preparing for those medical expenses in retirement, a health savings account (HSA) may be of great help,” says Jody Dietel, senior vice president, advocacy and government affairs at HealthEquity. According to him, when combined with a high-deductible healthcare plan, HSA contributions are tax-free, the balance accumulates tax-free, and withdrawals are tax-free.

“The account can help you create a healthy nest egg that will save you from having to dip into your 401(k) for unforeseen healthcare expenses,” said Dietel.

12. Most people will require long-term care

According to the US Department of Health and Human Services, around 70% of adults over age 65 will require long-term care at some point in their life. “The cost varies by state, but three years may easily cost $300,000,” said Mark Struthers, a certified financial adviser at Sona Financial in Chanhassen, Minnesota.

As protection against likely costs, Struthers recommended that retirees get long-term care insurance, which was designed to cover long-term expenses such as skilled nursing, assisted living, and hospice care.

13. Your overall health will impact your retirement expenses

According to the CDC, regular physical activity and exercise can help you handle and avoid chronic illness, which is costly to treat. The National Institute on Aging has sample workouts and nutrition information for retirees and those nearing retirement.

14. Inflation can deplete your savings

For the past 25 years, the United States has had very low inflation, owing in large part to strategic decisions by the Federal Reserve. Even so, as anybody who has lived through a period of hyperinflation will tell, 10%-per-year inflation is possible.

Inflation, according to Struthers, may be disastrous for retirees. If we’re in retirement for 30 to 40 years with a fixed income source, our purchasing power can easily be decreased by 60 to 70%.

Struthers advised investing in inflation-sensitive assets such as Treasury inflation-protected instruments (TIPs) and I-Bonds to mitigate the consequences of inflation.

15. You don’t have a clear idea of how much you’re spending

You should have a good sense of how much money you're spending. Still, if you don't, you're not alone.

"More than half of the folks I talk to who are planning for retirement don't have a solid grasp of how much they spend and where it goes," said Daniel P. Johnson, CFP and Forward Thinking Wealth Management's founder, in Akron, Ohio.

Retirees must be aware of this information because they’ll use their assets to bridge the gap between what goes out and what comes in via their pensions and Social Security plans.

“There's a big difference between expecting to require an extra $20,000 a year from your investments to close the gap and actually needing $50,000,” said Johnson.

16. While your child can borrow for college, you cannot borrow for retirement

According to Sally Brandon, senior vice president, client service and counseling at Rebalance IRA, many parents are torn between helping their children pay for college and saving for retirement. “Putting a lot of money into a college fund isn't helpful if your retirement funds suffer as a result,” she explained.

Instead, Brandon advised creating a budget for how much money you can afford to put toward education.

“Tell your child how much you can afford to pay,” she said. “If you have additional money after you've saved what you need for retirement, that's even better.”

17. Your employer may not help you in preparing

“Not every workplace provides a 401(k) or comparable plan. While a 401(k) is a fantastic retirement tool when available,” Brandon added, “other alternatives are also available to you.” She advised those who didn't have an employer-sponsored plan to set up an automatic payment plan to fund a Roth IRA.

“A Roth IRA enables you to save for both emergencies and retirement. Money put in as a contribution can be withdrawn tax-free afterward,” said Brandon. The account can also be used for estate planning and is typically more tax-efficient than a traditional IRA.

18. You can overspend on a home…

A survey conducted by American Financing revealed that 44% of Americans aged 60 to 70 still have a mortgage when they retire, as reported by the Chicago Tribune. “Some retirees even expand their houses,” said Cary Carbonaro, a Goldman Sachs certified financial adviser and author of The Money Queen's Guide: For Women Who Want to Build Wealth and Banish Fear.

“A large mortgage payment can severely restrict cash flow, especially for those on a limited income. It's always wise to cut costs by downsizing,” Carbonaro added. Taxes, utilities, and maintenance expenses are usually continuously increasing.

19. …or you can be home poor

However, paying down your home may not be an optimal solution if it leaves you with insufficient retirement funds.

“Suppose the majority of your wealth is tied up in your primary residence as you approach retirement. In that case, it can be challenging to come up with a good solution that’ll allow you to maintain your preferred lifestyle – especially if you want to stay in the home,” said Taylor Schulte, founder, and CEO of Define Financial, a commission-free financial planning firm in San Diego.

Schulte advised reducing and using part of the equity to help finance your retirement. “Many people in this circumstance already have a home that is way too large for their needs anyway,” he added.

20. You might have to relocate

Depending on where you reside, you may want to consider relocating to a region where your retirement funds will go further. For many individuals, especially those concerned about their retirement, it's a cost-cutting measure. It's also an opportunity to move to a more desirable climate or be closer to grandchildren and like-minded ex-pats.

21. Maybe you’ll need to work part-time 

Some senior Americans understand the physical and mental health benefits of keeping one's intellect engaged. Others don’t have the financial means to retire. Whether you work postage  67 because of need or choice, one thing is certain: the extra money can significantly improve your retirement savings.

22. Your adult children could wreck your retirement plans…

If you want to retire, you may need to divorce your children. According to a Merrill Lynch and Age Wave study, 79% of parents continue to support their adult children financially.

Middle age is also the prime income-earning period for many Americans, and it is ideal for savers to have the maximum disposable income available to supplement retirement accounts. Providing financial support to a loved one during those years might seriously affect your retirement funds.

Benjamin Brandt, CFP and president of Capital City Wealth Management in Bismarck, North Dakota, advised incorporating a plan B alternative into a retirement plan. “For example, if you expect your child might return home, being proactive instead of reactive will always lead to better retirement results,” he says.

23. …or by your aging parents

Because most adult children are hesitant to renounce support from a parent, Brandt advised workers to plan ahead of time if they anticipate this cost.

“If a client believes they’ll probably take care of a parent, they may develop a contingency plan,” he said. “They can transition to part-time work sooner than expected, or they may be able to work longer if more finances are required rather than extra time as a caregiver,” added Brandt.

24. Or you might end up in a sandwich between both generations

According to a Nationwide Retirement Institute survey, 38% of older adults said their adult children live or have lived with them, and 16% said their parents lived or have lived with them. Some older adults may find themselves providing financial support and care to two generations at the same time.

"This problem is so widespread that it has a name: the Sandwich Generation," said Brandt.

Many people sacrifice their capacity to save for retirement by supporting loved ones. A Nationwide Retirement Institute survey showed that 21% of older adults are somewhat or very concerned about financially helping their adult children or parents.

25. You’ll need to discuss your end-of-life decisions with your children

No one likes to think about their death, but according to the National Institute on Aging, it's preferable to discuss end-of-life care preferences well before disease strikes.

Individuals should think about when they want to take life-prolonging measures, where they want to get care, as well as what they want to happen if they become physically unable to care for themselves. The unfortunate reality of retirement is that these are the years when such decisions must be made, and it’s best to discuss your preferences with your loved ones – and your doctors.

26. You’ll have to talk about your wealth transfer plans

Even if you have a little inheritance to pass down, it might be tough to start the money talk, especially if you don't know how your future heirs would respond to the news of an upcoming windfall. Some kids feel guilty when they receive something unearned and waste the funds. Others may misinterpret your motives. "Did Mom love my brother more than me?" is a common question among children of the departed.

To prevent misunderstandings, have a sit-down talk with your future heirs so they understand the reasoning behind your decisions and can begin emotionally preparing.

27. You'll need to think about your burial plan


“Many individuals are uncomfortable talking about death,” says funeral director Veronica Reyes. Still, ignoring the subject might lead to bigger issues, especially if you wait until your health is in bad shape.


“Solidifying your burial or cremation arrangements now, with a calm and clear head allows you to lock in a fixed price,” she said. This way, your loved ones won’t be faced with difficult decisions or unexpected funeral expenses.

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