Are you afraid of going broke in retirement?
The thought of going broke makes you anxious? That’s why you need to take care of a few things before you retire. As weird as it sounds, this is a common thing nowadays because a lot of people are afraid of retiring.
That’s why a lot of them are just planning to work as much as possible in order to get all the benefits and not end up going broke. But you can’t work all the time, right?
However, once you’ve retired, you need to have enough money to survive because you won’t have a paycheck every month anymore.
This needs to be planned ahead because it takes a lot of time.
1. You spend too much
With this inflation going on, I think this is a major problem, but unfortunately, if you don’t become a little bit more disciplined, you will end up broke. Some studies have shown that 46% of retired people are actually spending more annually in the first two years of retirement than they did before. Crazy right?
It’s common sense that you should try to spend a little less in order to have enough money by the end of the month. If you don’t want to end up broke, add up your monthly expenses (taxes, bills, and long-term health care) and separate them into two groups: the must-have ones and the extras, or optional expenses.
Then try to check all the sources of your income and see what the final budget is. I know it may be tempting to spend a lot of money on clothes or on unnecessary stuff.
But if you don’t want to end up broke, you need to keep your wallet close.
2. You didn’t start saving early
The earlier you start saving, the more time you will have to put aside as much as you want, and the lower the chances you’ll end up broke in your golden years. But if you wait too long to start saving, you will end up saving more every month until you build up the amount you want for retirement.l
The ideal situation is to start saving when you get hired for the first time. But how many people would do that?
If you want to retire by the age of 67, you should have eight times your income saved by the time you turn 60 years old.
What are YOUR tips to saving more money and not ending up broke in your retirement?
3. You rely on a single source of income
At least 94% of retirees and more than 80% of workers have Social Security as their primary source of income. Which is pretty wrong because you can’t rely on one source of income. And a major portion of the elderly have a constant fear that this program will disappear or be reduced by the time they retire. This thought might frighten me as well.
Anyway, having just one source of income won’t be enough to have a comfortable retirement. So, set aside some money to help you when things aren’t going so well. You can actually create a “mix” of money from different sources, like a pension, a 401(k) from the job, and your own IRAs.
I know it’s difficult, especially with all this inflation going on, but with a bit of organization, you will manage to get the retirement you want and avoid ending up broke.
4. You get sick
It’s a certainty that when we get older, our health deteriorates. And everything related to this matter is expensive. It has been proven that a 65-year old man will need to save at least $142,000 to have a 90% chance of affording treatment in case they get sick. Of course, there are some costs covered by Medicare or any other private insurance.
If you are a woman, it’s a bit worse because you have to save even more money to avoid ending up broke. You will need at least $159,000 and you should be sure you’re doing all you can to cut health care costs in retirement. Consider supplemental medigap and Medicare Advantage plans, and make sure you will review all the options annually.
5. You underestimated your life expectancy
Everybody wants to live a long life and be as happy as possible. Keeping the happiness in it might be a trick. Because believe it or not, this might depend on you having enough money and not going broke soon after you retire.
If you saved enough to cover expenses for the next 20 years, but you will actually end up living maybe 30 years from now, then you will have to find a way to expand your savings for another 10 years.
In order to reduce the risk of having an empty account, you shouldn’t rely on just one source of income. If you won’t have a pension, you should actually take a balanced approach by having a source of lifetime income such as an annuity.
TIP: If you want to maintain the same level of lifestyle after your retirement, then you will need at least 70% of your income in retirement. And if you want to retire early, make sure your money is enough and read more about the conditions in the state you’re living in.
6. You’re still paying off your house or car
If this is the situation, it might be a bit complicated. Like credit card debt, car or house payments cost more the longer you take to pay them. Use every financial windfall you can to get over these payments that seem like a burden. And after this, your fear that you will end up broke in retirement will disappear!
7. You give too much to your kids or grandkids
Helping your family is a natural thing, but most of the time it’s a common financial mistake. Why? Because we, as parents, are usually willing to give everything to our children, we tend to forget about ourselves. And this applies to retirement savings as well. Take care of yourself first and make sure you put aside enough money to be your back-up when you retire.
After that, if there is any money left, of course you can help them out. If you want to help your children buy a new home, think about the expenses. It’s a nice gesture, but they can stay in an affordable rented house until they are able to buy their own house.
There are plenty of ways to take care of them without really giving them any money. Make sure you don’t end up broke by being a good parent!
8. You haven’t considered inflation
When you are a 9-to-5 worker, you don’t really feel the impact of inflation if your salary is rising along with the prices. That’s why you might not take into consideration your retirement savings that much. But if you’re planning on retiring in a couple of years, you should keep in mind that you will definitely need more money than you thought you did. If you don’t know where to start with, this book from Amazon can help you build a strategy to start saving money for retirement.
If you want to save more because of inflation, you should consider delaying Social Security benefits. You can also maximize your Social Security benefit by simply waiting to claim it until you’re 70 years old. Then your monthly check will be bigger. Plus the Social Security Administration’s cost of living will be applied to that bigger payout. This will keep you on guard for inflation.
Hard times, right? What is your plan to keep you from going broke? Tell us in the comments section.
9. You didn’t take taxes into consideration
You probably don’t realize how much taxes will take out of your retirement income. It won’t leave you broke, but if you don’t save enough money to cover every expense you have, then you might end up living on the edge. You will have to pay income taxes on a 401(k) or IRA. So let’s say that you need $50,000 a year to cover your expenses.
Then you will have to withdraw even more to cover the tax bill. And if you don’t take this into consideration, you will probably end up going through your savings quicker than expected.
Experts advise us that you can reduce the tax on your retirement income “by saving in a combination of taxable, tax-deferred, and tax-free accounts”. For example, you will pay the capital gains tax rate, which is usually lower than the regular income tax rate.
If you have a traditional IRA, you might consider converting to a Roth IRA in early retirement for a source of tax-free income. Neat, right?
10. You borrowed from your retirement savings
Retirement seems years away, and the money won’t leave anytime soon, right? And somehow, you have the brilliant idea of borrowing some money from your 401(k). This is basically the biggest mistake you can make and something that you will definitely regret in retirement.
If you take a loan from your 401(k), it can damage the growth of your retirement, which will have consequences in the future. And if you just made the mistake of not putting them back, it is definitely the path to going broke.
You have to take into consideration that if you stop making new contributions as you try to pay off your debt, then, of course, there won’t be any contributions from your employer either.
The main focus of a carefree retirement is that you should start downsizing your life as you are nearing retirement age. That can be selling your large house and considering moving to a smaller, more affordable one or, if it’s possible, relocating to another city or country that meets your needs.
Review your budget, reduce your spending on stuff you don’t actually need, and slowly build up your emergency fund. Don’t step into retirement with bare hands, also known as “broke!”
Did you enjoy reading this article about going broke? Then we also recommend reading about: 7 Ways Your Retirement Jobs Affect Social Security.