5 Things That Make a Middle Class Retirement 10x Cheaper, According to Experts
Written by
Terence Loose
Edited by
Amen Oyiboke
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Retirement is supposed to be a time of relaxation, enjoyment and getting to all the things you put off or didn’t have time for during your working years. Unfortunately, more often than not, those things demand money. And often, a lot more than you expected.
So while it’s important to make sound investments, contribute to 401(k)s and IRAs, and enjoy a favorable return on investments, lowering the cost of retirement is just as important.
Here are five ways experts say you can lower the gold needed for your golden years.
Eliminating Debt
It’s hard enough to keep up with debt when you’re earning a good salary. But when you’re retired, debt can become catastrophic, said Trevor Houston, CEO at ClearPath Wealth Strategies, LLC. He strongly advises his clients to eliminate their debt before retirement.
“Debt can erode your savings faster than you think,” he said. “A paid-off home, no car loans, no credit cards. That’s freedom. Your entire income goes directly into supporting your lifestyle instead of servicing debt.”
He advised a slow and steady approach. Pay off debts that have the highest interest rate first — typically credit cards — then roll that freed-up money into paying off other debts.
The bottom line? “A debt-free retirement provides more than just financial savings. It’s lighter,” said Houston.
Utilizing HSA Accounts
It might not be pleasant to think about, but the fact is, it’s highly likely you’ll have more doctor visits, prescriptions, and procedures in retirement than when you’re young. And, perhaps because they’re slightly confusing, most people overlook their health savings account (HSA) when they’re working, said Nick St. George of St. George Wealth Management. They shouldn’t.
Not only can you use these in retirement, he said, but they are triple tax-free. “They offer tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified expenses,” St. George said.
Planning for Long-Term Care
Long-term care costs can be truly eye-popping, as well as more common than many might think. According to Charles Schwab, nearly 70% of today’s 65-year-olds will require long-term care. At $75,504 for an in-home health aide and $116,800 for a private room in a skilled nursing facility, that’s $226,512 to $350,400 for three years’ worth of care, the average needed.
“Long-term care ends up as one of the biggest retirement expenses, and people don’t always know that Medicare doesn’t cover it,” said Christen Bergeron, founder of Navigating Senior Living.
She said that locking in long-term care insurance while you are in your 40s or 50s costs significantly less than waiting to do so until you are in your 60s or 70s.
“It can protect your assets from being depleted later, and protects the spouse at home if one of you ends up needing long-term care and the other does not,” she said.
Proper Tax Planning
Most people assume that their tax bracket will drop during their retirement. Not always the case, said St. George. Pensions, IRA distributions, capital gains and other forms of income can put you in a tax bracket you didn’t expect, especially without the benefit of 401(k) contributions to lower it.
The key, said St. George, is planning, diversification and timing. “Just because you are retired doesn’t mean you need to turn on income from every source at once. Having as many different buckets as possible to pull from and coordinating when to pull from those buckets can save thousands in taxes,” he said.
Building in Some Wiggle Room
Life has a way of not going as planned. So why would retirement? “All of the software and talking heads make it seem like retirement is a perfect linear sequence of returns and life cycle,” said St. George. Not true. “Things will go sideways.”
Just like during your work life, the HVAC system will conk out, or your adult child might need a boost, or your car might decide to retire too. The list of unexpected expenses never really ends.
“Have some extra savings and give yourself some margin of error on income. Do not assume everything will go smoothly,” he said. Because it won’t.
Retirement isn’t work life — but it’s still life. And life is unpredictable.
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