Retirement is a time of major change, and for most of us and usually requires major adjustments.
First is the challenge of figuring out how to spend your day, after getting up each morning for however many years to make that early-morning commute to your job.
Then there’s the fact that you are no longer receiving a weekly paycheck. After 30 or more years of cashing that regular paycheck, all of a sudden it stops. For the rest of your life you will be living off a pension (if you are one of the few who are fortunate enough to have one) or, more likely, you’re completely dependent on whatever money you have saved in your company-sponsored 401(k) or you IRA.
All you can do is hope that you do not run out of money during your lifetime.
Keeping all of that in mind, I’ve come up with a list of retirement “shocks,” things that could throw anyone’s retirement off course. But beware. Some of these things can do serious damage to your retirement plans and your lifestyle.
- The cost of health care. “That’s probably the biggest shock that retirees face,” says Brett King, vice president at EliteFinancial Associates. in Tampa, Fla.
“People really don’t plan for that,” he says. “A lot of people I meet with for first time are under the impression that somehow they will be covered by something at work, even when they have left their jobs.”
An analysis from Fidelity Investment’s Retiree Health Care Cost Estimator says a 65-year-old couple retiring in 2016 will need a whopping $260,000 to cover health care costs in retirement. That’s up 6 percent from 2015 and the highest estimate since the company began calculations in 2002, Fidelity says.
“We are more conscious. especially in current climate about health care,” says Charles Winfrey, president of the Rollover Co. in Nashville, Tenn. “We acknowledge it, but we are still clueless about the impact. How will I be able to pay for care over time?”
- Inflation and taxes. “I always couple taxes and inflation together,” says Winfrey. “Those are two enemies of retirees. We see it every day when we go out and buy things, but we don’t connect how it affects our income.
“Many times we focus on federal taxes, and don’t look at sales, and gasoline taxes at the state level. It has to be a part of retirees’ mindset and what I can do to see that I pay my fair share, but not more. What can you do to have a plan to make sure you are insulating yourself as much as you can.”
“People don’t always account for inflation,” says King. “When we run a retirement income report, we include historical inflation. People look at inflation the way it is now. That is not normal. If they want to use that figure, they are doing an injustice. You should be using a 30- or 40-year figure which is closer to 3 or 4 percent. Otherwise, 20 years down the road when you need more to retire, and haven’t planned for it, your buying power could be tremendously eroded.”
- Discovering they didn’t save enough for retirement. “If they don’t make certain adjustments, they are probably going to outlive their income,” says King. “There are some retirees who most likely will outlive their income, and they could be forced to try to live on Social security alone, which we know will be nearly impossible. We try to reallocate assets and use vehicles that are available to us to provide the option for interest accumulation, but without market risk exposure.” Fixed annuities are one option, he says.
“What do I do when I cannot work and my expenses continue to rise?” ask Winfrey. “If we continue to live in next 15 years, we will need more money to cover health care and basic necessities.”
- Having children move back in. A third of Baby Boomers – or eight million households — still support their children, according to Dissecting the Baby Boomers, a survey by financial research company Hearts & Wallets.
“It ultimately affects their savings, but also when they can retire,” says Alicia Lewis, president of Layman Lewis Financial Group in Loveland, Colo. “While they are trying to do what is best for their children, it’s hurting their own financial success and delaying their retirement. Retires and pre-retirees know it, but they don’t really know it until we show them.”
- Taking too much risk. “A big threat is not realizing you cannot invest same way in retirement that you did in working,” says Winfrey. “It is hard for them to disconnect that. The belief that I will always be able to do well can permeate in your mind. When we’ve had an inconsistent market, what kind of impact that can happen if same things happen again as they did in 2008? “They have to make sure they are balanced,” he says.
What’s the best way to help avoid the shocks? Even if you’ve already started retirement it’s not too late to sit down with a financial professional and map out a financial strategy for the remainder of your retirement.
“If I live longer than I anticipated, what is my lifetime income strategy?” Winfrey asks. “What do I do when I cannot work and my expenses continue to rise. Having lifetime income strategy is critical for those who have already retired.”
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