The Retirement Lie No One Talks About — and How It Could Cost You Thousands
Written by
Laura Bogart
Edited by
Kristen Mae
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When you dream of retirement, you probably envision a relaxed life, unburdened from preparing expense reports. Yes, days spent enjoying your hobbies and time with loved ones are generally easier, but you shouldn’t get lulled into a sense of complacency about everything in retirement. You can’t afford to get lax about your finances — quite literally.
Just because you’re off the clock doesn’t mean you’re free from paying your rent or mortgage. You’re still on the hook for groceries and utilities, taxes and car maintenance, and healthcare expenses. As you get deeper into your golden years, you’ll need to have more on hand for healthcare costs.
Yet many people are underprepared for the financial challenges of retirement. Even AARP has reported on the phenomenon of people who were surprised by the “sudden expenses” of retirement. The surprise comes from thinking that once you’re retired, the cost of life will somehow slow down with the pace of it. Unfortunately, that’s simply not true — and believing the lie could cost you big.
The Right Amount of Retirement Income May Surprise You
You may not be in the workforce anymore, but that doesn’t mean you stop spending. Your morning trip to the grocery store, afternoon doctor’s appointment, and evening meal with friends should tell you as much. It can be easy to forget when you’re no longer tracking a paycheck, but almost everything you do costs money.
Financial experts commonly suggest that retirees will need roughly 70% to 80% of their pre-retirement income to maintain their standard of living in retirement. This range accounts for typical decreases in some expenses, like commuting, but also considers increases in other areas, such as healthcare.
That said, individual circumstances can significantly influence this percentage. If you’re more likely to be active in retirement, filling your days with travel and hobbies, you should be prepared to add to your annual retirement budget to accommodate those additional expenses. It’s also important to factor in healthcare costs, which tend to rise with age and can quickly eat away at your retirement budget.
The Perils of Underpreparing
From paying your property taxes to shelling out the copays for your doctor’s visits, you’ll need to be prepared financially. If you’re not, you could find yourself racking up serious credit card or medical debt. And the tax man could come calling.
You don’t want to put yourself in a situation where you run out of retirement funds, jeopardizing your ability to pay for basic needs, let alone the things that make retirement joyful, like travel. And you really don’t want to end up in a place where you’re entirely dependent on your Social Security benefits or government assistance to make ends meet — especially considering how factors like inflation could erode your savings and make it increasingly difficult to maintain your standard of living.
In truly worst-case scenarios, you could end up needing to move back in with your adult children or other relatives.
How To Prepare
To avoid these financial doomsday scenarios, it’s vital that you understand exactly how much you already have in retirement savings between your various accounts, and factor in issues like inflation to figure out what that might look like in the future. Working with a financial advisor, you should take a clear-eyed inventory of your retirement finances and develop a plan to make sure you’ll have stable income while living the life you want.
There are also a few immediate steps you can take. If you’re capable of maxing out your 401(k) and IRA accounts, you should absolutely do so. And once you’ve blown out the candles on your 50th birthday cake, you could be eligible to make catch-up contributions to your 401(k) or other employer-sponsored retirement plans.
You can also build stable sources of income throughout your retirement by purchasing an annuity. A health savings account (HSA) is a great way to set aside tax-free money for those looming healthcare expenses. Even if you’ve been anxious about dipping your toe into investing, connecting with a professional can help you start your portfolio — another way of generating income in retirement.
Bottom Line
It’s easy to imagine that your costs will go down when your formal paychecks stop coming in as a retiree, but sadly, life doesn’t work that way. Not having enough saved up for retirement could cost you thousands of dollars and potentially lead you into debt.
Working with a financial advisor to get a clear look at your retirement savings and plan ahead, while exploring other avenues of retirement income, can help you live the comfortable, stable life in retirement that you deserve.
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