3 retirement surprises to anticipate
Many seniors enter their senior years unprepared for the financial realities of retirement. You don’t want to be one of them.
1/ You may have to retire earlier than expected
Many future retirees plan to work until age 60, often for financial reasons. Unfortunately, it’s not always possible to stay at work that long. In fact, unplanned early retirement is really common.
If you’ve set your retirement goals based on earning a salary until late in life, it’s a nasty surprise to find out that it’s not going to happen. You may not have saved enough and Social Security may not provide as much income as you expected if you were counting on a late claim to increase your benefits.
To avoid falling victim to this surprise, assume that you will leave your job and claim Social Security at age 62 when you set your savings goals. Taking this approach will force you to save more. It also means that your retirement account balance will be high enough to support you, even if you retire early and reduce your Social Security amount.
2/ Your expenses may not decrease as much as you think
Many people base their retirement goals on the assumption that they will only need 80% of their pre-retirement income to maintain their standard of living. This is because they assume they won’t need to save as much and that their expenses will decrease in other areas as well.
In reality, you may face different expenses as a senior. It turns out that expenses don’t decrease much for many people. If you are one of them, you may be facing a lack of savings.
Rather than banking on the fact that you’ll reduce your expenses by 20% and being surprised if that doesn’t happen, prepare your retirement plans assuming you’ll need to replace 90% or even 100% of your income before retirement. Again, it’s better to have too much money than too little.
3/ Your health care is likely to be very expensive
Speaking of expenses, there’s a good chance that health care will be one of the biggest. Unfortunately, this may come as a surprise to retirees who were counting on Medicare to cover everything.
In fact, Medicare comes with high co-insurance costs, premiums and deductibles, and some routine care, such as dental care and hearing aids, is not covered. The reality is that the average 65-year-old retiring today may have to pay about $300,000 for medical care. And if you’re far from retirement, that number is likely to be even higher.
Preparing for huge health care expenses is a lifelong effort. If you are eligible for a health savings account, investing in it throughout your career can help you be prepared. If not, consider health expenses when deciding how much to contribute to your 401(k), IRA and other retirement plans.
If you’re surprised by your spending habits, health care needs or unplanned early retirement, you could find yourself in dire financial straits. The good news, however, is that you now know that you will likely face these challenges in your later years, and you can prepare for them.