We are all looking forward to what has been dubbed the “golden retirement age,” and there are a lot of things that are amazing, but these amazing promises hide some uncomfortable truths. While there are some things that seem to be so appealing because they are told to us all the time about this period, there are things that people gloss over in order not to scare the people that are about to retire.
However, those things, while uncomfortable to hear, are needed so those of us that are close to retiring know what to expect, and for those who are far away from the retirement period, they are needed so they know to prepare adequately for those years.
It’s not often that people are truthful about what retirement is about, and this can be a problem: from the unforeseen medical costs people don’t like to talk about to a lot of expenses and things people have to do but don’t expect, there are a lot of aspects that aren’t talked about. This is why we have gathered these hard truths about retirement that you should have on your mind when you think about retirement, especially if you are close to the period.
Let us know if you have considered any of these before or if they’re all new to you!
You can lose a lot if you mistime your Social Security Benefits
If you start taking payments from your Social Security account before reaching your retirement age, that money doesn’t get replaced. The truth is that you are actively taking away from the amount you will be paid monthly, and there is no way to get it back. Once you start taking early payments, you’re decreasing your future monthly payment.
A good tip from people who have been through all of this already is to try to wait for as much as possible until you start to take out Social Security payments. You will be getting more money with each check then, as opposed to decreasing the amount. However, there are a lot of things that can be factored in, so it would be a great idea to talk to an expert or use an online optimizer to see when the best time is to take out payments.
Your nest egg may fall victim to inflation
Here’s the hard truth about everything that is currently happening: inflation is one of the biggest threats to your retirement funds. And while, thanks to the Federal Reserve, the United States hasn’t seen a huge inflation rise in the last two decades, we all know that nothing is secure. Inflation can always skyrocket in a matter of weeks, and experts have stated that 10% annual inflation can occur at any time.
With how the recent world events have shown their impact on our inflation spiking up and everything getting more expensive, this point is more relevant than ever. Inflation can end up ruining most retirees. We plan accordingly to how we saved at a specific point in time, but inflation can end up racking prices so high that you could end up depleting your savings account sooner than expected.
This is why you should always make sure you diversify your portfolio when you can, which will make your investments inflation-sensitive, such as real estate and Treasury inflation-protected securities (TIPs), so you don’t end up losing money in the long run.
You might have to work part-time
It may not have crossed your mind, but it’s the reality for a lot of American retirees. This comes from the fact that some people end up taking up such a job because they want to keep active, both mentally and physically, as it brings about a lot of health benefits. Some find retirement boring after working for so many years, and a part-time job helps them keep a routine.
But the ugly truth here is that some retirees end up having to keep working because they can not afford not to. So be it that you have to, by choice or necessity, it’s something to keep in mind. We all love to envision ourselves relaxing once retired, but the reality may be very different, even if you are just bored.
Life expectancy is higher, so your calculations could be wrong
This may not be of concern right now, but it may become one later in your life, or it’s already started to appear in between other thoughts. The average life expectancy rose to 78.6 years in the United States, according to research conducted by the Centers for Disease Control and Prevention. And while this is amazing news, it also brings about the problem that a lot of retirees don’t end up having that many funds.
The truth is that you may end up living way beyond that number, as this is dependent on a lot of factors. And, despite our best efforts, we cannot predict how long we will live or whether our retirement funds will be sufficient to last us the rest of our lives. This has become a huge concern for a lot of retirees, so it’s good to start thinking about means of outliving your income before you retire: look into certain products that offer a guaranteed income, like indexed annuities!
Medical truth no.1: Medicaid will not cover everything
There are a lot of hard truths that deal with the medical side that many people don’t give the time of day, mostly because they end up being healthy and having no such problems. Yet, this is still something that can come as a huge surprise and deplete your funds way faster than you would expect.
Since universal healthcare isn’t guaranteed, we are fortunate to have access to Medicare. And while a lot of us who are healthy as a mule don’t think about it, this service will not end up covering everything you may need during your retirement years. It’s not something we like to think about, but the truth of the matter is that health deteriorates with age, and we all have different needs, some of which aren’t covered by Medicaid.
Things such as hearing, vision, or dental issues aren’t covered, along with long-term care, even in a nursing or assisted living facility. This will put you at risk of having to pay huge deductibles and co-pays, which is why we suggest you plan for health-related expenses when you are putting money aside for retirement. Whether it’s saving a bit extra every month or signing up for a supplemental insurance plan, you should start thinking about this potential issue today.
You can’t put retirement on the back burner for college funds
Unfortunately, this happens to a lot of parents nowadays. With how expensive college has become, a lot of us face the problem of being stuck between helping our kids with their college payments and trying to save for retirement. However, as tempting as it sounds, you shouldn’t be neglecting your retirement fund just because you want to help.
Putting a lot of money into a college fund but none into retirement savings is probably one of the biggest mistakes you can make. Of course, we aren’t saying that you shouldn’t help your kids out. But you should see what you can do and how much you can afford to help and pay, while the rest can be covered by scholarships, loans, and other benefits.
Believe us, it will be hard, but the truth is that very large college funds will not help you at all when it comes to retirement savings. And you may end up not being able to raise enough money to live comfortably if you start putting money away just after your kids go to college.
Medical truth no.2: Your health will cost you more than you can expect
The other hard-to-swallow truth is the fact that healthcare and upkeeping it will cost you way more than you could ever imagine. And we’re not just saying this to scare you! A study from 2019 found that an average couple retiring at 65 ends up having to spend about $285,000 just on medical costs over their whole retirement years. And as we mentioned earlier, not all of those will be covered by Medicaid!
It’s for the best if you end up investing in such things as HSAs (health savings accounts), which will be separate from the rest of your savings accounts. That way, those funds can help you if there are any medical costs that are unexpected after you retire. Moreover, it can be a saving grace when you can pull money from that account and not from your 401(k) plan or other nest egg you may have. It’s amazing if you can make this account and forget you have it, even while you are young!
After all, you never know when medical expenses may occur, and it’s better to be prepared!
You might have to move, but not because you want to
As much as we all love our homes, sometimes you may have to consider moving even if it’s not really the ideal thing. This can be both because a new place can make your savings last longer and you can live more comfortably, but also because it could lessen the stress and worry about not being able to retire comfortably.
If you have extra funds to move somewhere else and buy property, you can rent your old home and get some extra income from that, or you can just think of this move as a great chance to be closer to grandkids, go to a better climate for you, or just get to enjoy a community with more senior members. There are a lot of reasons why you could want to move, so if retirement is worrying you too much, look into this opportunity! And since we’re at it, I feel we might need some extra help. There’s this book written by Ryan Frederick called “Right Place, Right Time” and it is focused on the intersection of place and healthy aging.
Read all about how you can save money for your retirement fund today here!