4 Ways People Struggle Financially in Retirement — and How To Make Things Easier

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Retirement planning is a difficult endeavor. Even if you think you’ve saved enough and have a solid strategy in place, you might not be so confident when the time finally comes.

Knowing some of the financial challenges that retirees face can help you improve your retirement plan and prepare for issues before they arise.

Financial Challenges of Retirement

Most people think of retirement as a time when you can finally stop working and enjoy your life as you grow old. It’s easy to overlook the significant difficulties that come with not having a job, especially regarding your financial health.

Here are some of the most common financial challenges of retirement.

1. Running Out of Savings

Beginning retirement without enough savings can be very difficult to overcome. Lots of new retirees don’t realize until it’s too late that they started putting money away too late in their career, failed to maximize retirement contributions or underestimated how much they’d need to retire comfortably. Likewise, using too much of your savings early in your retirement can present problems later on.

2. Lack of Income

Because there are fewer opportunities to make money at retirement age, a limited income may present a number of problems.

Many retirees may depend on dividend stocks, high-yield investments or other passive income streams to generate income. If these methods don’t provide enough to meet the cost of living, they might have to tap into Social Security or retirement savings earlier than anticipated.

3. Increased Healthcare Costs

As individuals age, healthcare costs tend to increase. Even with Medicare, retirees still must pay for out-of-pocket expenses and premiums, which can quickly drain retirement savings.

Because it’s impossible to predict how and when health problems might arise, healthcare costs can hamper even the best-laid retirement plans. People who are unaware of how much they should save for medical costs most likely won’t have enough for retirement.

4. Market Volatility

Market volatility can benefit investors who are willing to take risks and look for opportunities to profit quickly. However, in retirement, it can be very inconvenient.

Retirees with a lot of their savings in stocks may run into trouble when the market dips. Without enough cash on hand, these individuals may have to sell shares at a low price just to maintain their everyday costs of living. 

How To Make Retirement Easier

Retirement is a significant adjustment for most. It’s not only about how to spend your time now that you’ve finished work — it also requires a new mindset about how you’ll deal with your finances.

While there are many new challenges and adjustments that retirees must face, there are many solutions.

Reducing Costs

Retirement should be a time to enjoy life and all of the hard work you’ve put in over the years. However, since you may no longer have a steady income coming in each month, you’ll likely need to make some adjustments to your lifestyle and find places to cut costs.

Determine what you’re paying for that you may not use consistently or don’t need, such as streaming services, subscriptions and memberships. Consider expensive habits like shopping or dining out and find ways to enjoy them at a reduced rate. Reducing your monthly costs even by a small increment can add up to big savings over the years.

Budgeting

Budgeting is essential for a happy and financially healthy retirement. To best prepare yourself for the 30 to 40 years of retirement ahead, you’ll need to plan accordingly.

First, calculate how much you have and your net income from investments, Social Security, pensions or other means. Then, set long-term goals and work backward to find out how much you can spend monthly. Once you’ve determined how much you’ll spend on your monthly needs, such as mortgage payments and groceries, you can put money toward your wants, such as travel or spoiling grandkids.

Balancing a Portfolio

In order to fully take advantage of your portfolio during retirement, you’ll need to ensure it’s balanced effectively to sustain your finances over the long term.

Minimizing risk is extremely important, as you will depend on your investments for income over the years. You also want to have enough set aside for times when highly volatile assets like stocks are low, so you don’t have to sell them at a less-than-ideal price.

Each individual will have a different idea of how they want their investments to add up. Many people tend to shift to a more conservative strategy the older you get. In a portfolio consisting of stocks, bonds and cash, you may want to align your portfolio like this as you age.

Between ages 60 and 70, aim to have 5% in cash, 60% in stocks and 35% in cash. From 70 to 80, you may choose to convert more of your stocks into bonds and maintain a profile of 10% cash, 40% stocks and 50% bonds. After reaching 80 years old, you’ll want to have a very conservative portfolio. This may be 30% cash, 20% stocks and 50% bonds. 

Focusing on Health

While keeping an active and healthy lifestyle won’t solve all of your financial problems, it can help. Regular exercise and maintaining a healthy diet will cut down the risk of illness and medical complications. In addition, choosing activities like taking walks, dancing, swimming and gardening over sedentary activities like eating out or drinking can help you save money.

It’s important to remember that health isn’t just about the body. Old age brings about cognitive decline just as it creates physical limitations. Practicing mentally stimulating activities such as learning a second language and playing ping pong can play a part in preventing dementia.

Getting Financial Advice

Retirement can be challenging. It’s important to set yourself up correctly from the beginning so your money lasts throughout your retirement. Getting professional advice can be an excellent way to ensure you take the right steps. Financial advisors can help you budget, balance your portfolio and provide insights on what to expect.

Retirement challenges like mismanaging savings and dealing with market volatility can cause headaches, but there are solutions to ease the stress. Securing your finances early and planning ahead can help make retirement an enjoyable experience. Remember to seek financial advice for decisions or processes you need help with.

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