Many workers look forward to retirement, only to wind up disappointed once it kicks off. If you want to enjoy your golden years to the fullest, be aware of these factors that could turn your retirement upside down.
A dollar today won’t have the same buying power 10, 20, or 30 years from now. If you don’t invest your savings in a manner that matches or, more ideally, outpaces inflation, you’re likely to have a hard time keeping up with your expenses when you’re older. A good bet, therefore, is to invest aggressively during your working years by loading up on stocks.
Stocks have historically delivered an average annual 9% return, so if they constitute a large chunk of your portfolio, there’s a good chance you’ll score an average annual 7% return over time. Invest $500 a month over 40 years at that rate, and you’ll grow $240,000 in out-of-pocket retirement plan contributions into nearly $1.2 million dollars. And that difference should be more than enough to account for price increases that result from inflation over time.
2. Rising healthcare costs
Healthcare is a major burden for Americans of all ages, but seniors on a fixed income often have an exceptionally difficult time keeping up. If you don’t want healthcare to derail your retirement, know what costs you’re in for and prepare to take steps to minimize them as much as you can.
According to HealthView Services, a cost projection software provider, healthcare will cost the typical 65-year-old man who lives an average lifespan an estimated $189,687 in today’s dollars. The average 65-year-old woman, meanwhile, is looking at $214,565. Plan for these costs by boosting your savings as necessary, keeping in mind that they don’t include long-term care (which we’ll talk about in a bit). At the same time, read up on Medicare so that you understand what services it covers and how you might eke out some savings.
Many seniors are caught off-guard when they enter retirement and realize they’re just as liable for taxes as they were during their working years. There are several ways you might get taxed in retirement. First, if you house your savings in a non-Roth IRA or 401(k), the withdrawals you take from your account are subject to taxes. The same holds true for required minimum distributions, other than those taken from a Roth 401(k).
Additionally, if you’re fortunate enough to have pension income, it will likely be taxable, as might your Social Security benefits depending on where you live and how much additional income you bring in. Finally, if you make money from investments held in a traditional brokerage account, those gains, interest payments, or dividends will be taxable, too. Know what taxes you’re in for to avoid surprises that throw your finances off-course.
4. Long-term care
It’s easy to think of long-term care as somebody else’s problem, but in reality, a good 70% of seniors wind up needing some form of long-term care in their lifetime. And the associated costs are pretty shocking. The average assisted-living facility in the U.S. costs $48,000 a year, according to Genworth Financial’s 2018 Cost of Care Survey. A shared room in a nursing home, meanwhile, costs $89,297 a year on average, while a private one costs $100,375.
The best way to defray these costs is to purchase long-term care insurance during your 50s or 60s, keeping in mind that the younger you are when you apply, the more likely you are to snag a health-based discount on your premium costs. Padding your savings will also make long-term care more manageable, especially since your policy might not cover your costs in their entirety.
There’s a reason why retirees are 40% more likely to suffer from depression than workers: Too much free time can lead to feelings of monotony, frustration, and worthlessness. Now saving more money during your working years can help you avoid getting bored, since the more savings you have, the more options you’ll have to pursue hobbies, travel, or do other engaging things with your time. But just as importantly, make sure you have a plan going into retirement as to how you’ll spend your days. That could involve taking classes, teaching workshops, or spending time with your grandkids, but the key is to go in with an idea of how you’ll remain occupied day in, day out.
Similarly, it’s a good idea to make sure you’ll have some company in retirement. Otherwise, you might wind up getting lonely quickly, even if you have the money to go out and do things.
The last thing you want to do is retire and hate it. Be aware of these pitfalls and plan around them so that you wind up happy, fulfilled, and financially stable during your golden years.