Saving for retirement is difficult enough if all goes according to plan. However, individuals often encounter serious speed bumps on the road to retirement wealth. Although one of these issues on its own might not spell disaster, taken together, these obstacles can derail even the soundest retirement plans.
Here are the 30 greatest threats to your retirement, as well as tips for overcoming them.
1. Grown Kids Siphoning Off Your Retirement Money
Most people want to help their children succeed in life. Experts caution against sharing too much of your retirement money with adult kids, however.
"You won't be around forever, and [children] need to stand on their own," said Eric McClain, a financial advisor at a retirement planning company.
Teach your kids to be independent — they will likely thank you in the end.
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2. Keeping Too Much House
An oversized house can be a serious financial burden for individuals trying to save for retirement. McClain said a house that's too large for your needs can become a liability, between upkeep costs and property taxes. Although it's natural to feel sentimental toward a home — or to want to avoid the stress of moving — people trying to save for retirement should consider relocating to a more appropriately sized property.
3. Having a Mortgage in Retirement
Depending on a retiree’s situation, having a mortgage in retirement could be a boon or a bust. If your mortgage payments are low, keeping that large property might not be a problem. On the other hand, if high house payments are preventing you from adding to your retirement nest egg, you might want to consider selling that overpriced property and moving to one that's more affordable.
4. Giving Too Much Away, Too Early
If you have extra cash, you might be tempted to give some away to family members or a favorite charity. There are some serious tax benefits to donating your retirement assets to charity, but individuals need to be mindful of timing. McClain said that people who give their money away too early risk outliving it.
5. Medical Expenses
Saving enough for retirement is difficult in and of itself but, when you add the burden of paying for healthcare during your golden years, the goal can seem unreachable. According to a 2017 Fidelity survey, couples in their mid-60s can expect to spend $275,000 on medical expenses during retirement.
"Large, debilitating medical expenses can decimate your savings," said personal finance writer Elizabeth Colegrove. She advised soon-to-be retirees who are still working to contribute money to a health savings account (HSA) whenever possible. A great vehicle to supplement your other retirement income, an HSA lets individuals pay for qualified medical expenses tax-free.
6. Long-Term Care Expenses
A medical situation that leads to the need for long-term care can erode one's retirement nest egg in a hurry. Long-term care costs can be staggering and have gradually increased over the years. Moreover, a 2016 article by the U.S. Department of Health and Human Services reveals that one in seven adults will one day have a disability requiring care for more than five years.
Unfortunately, only a small fraction of Americans have long-term care insurance.
7. Being Part of the Sandwich Generation
Members of the sandwich generation, aspiring retirees often find themselves caring for both adult children and aging parents.
"Other family members can be a drain when on a fixed income and resources," said Colegrove. "Instead of saving for holidays, vacations and larger expenses, your resources are spent on the older and younger generations."
The best solution is to plan ahead by creating a system to grow your assets as you save for retirement and to protect them once you've stopped working.
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8. Unexpected Major Expenses
Just because you've stopped working doesn't mean life stands still. Expenses can't always be predicted at the outset, and even the most mundane unexpected costs can threaten one's financial health in retirement.
Citing expenses such as roof repairs and new cars, Colegrove said, "It is very important that, in your day-to-day budget, you are still saving for these expenses. On fixed incomes, not only might it be harder to qualify for a loan to cover the costs, the loan payments could blow your budget."
9. The Shift to Defined Contribution Retirement Plans in the Military
Military members often assume that their financial needs will be covered in retirement. However, the shift toward defined contribution retirement plans has put more burden on veterans, said Doug Nordman, former member of the U.S. Navy's submarine force and military financial expert.
"The DoD is reducing their retirement expenses by at least 10 percent, but now the burden of saving for retirement lies even more heavily on the service members," said Nordman. "Just as we've learned with civilian 401ks, I doubt that the average young adult has the interest or the discipline, let alone the understanding, to make sure that they contribute enough to their TSP account for the full match."
10. The Shift to Defined Contribution Retirement Plans in the Private Sector
Military members aren't the only Americans taking on more responsibility with regard to retirement saving.
Over the last 30 years, the burden of saving for retirement has been shifted to workers via defined contribution plans, such as the 401k. If they don't manage their 401k accounts appropriately, these individuals could very well come up short in retirement.
11. The Pension Crises in Several States
Social Security and healthcare costs might dominate the headlines, but the pension crisis that many states are confronting is just as worrisome. In Illinois, for example, the unfunded pension debt has risen significantly, jeopardizing the retirement plans of many who are still currently working.
As state finances become further stretched, the health of the pension system is likely to suffer in kind.
12. The Myth of Spending Less in Retirement
Many individuals assume that they will spend significantly less money in retirement than they do during their working lives, said blogger and freelance writer Michelle Schroeder.
"This is usually a mistake because other expenses may increase, such as travel and healthcare costs," said Schroeder. "A person should also be realistic with their retirement spending instead of just assuming that it will be less."
Budget appropriately for retirement now to make sure your golden years are comfortable ones.
13. Taking 401k Loans
Taking a loan from your 401k can seem like a fine idea when times are tough. If an employer terminates you while you have an outstanding loan, however, you could wind up taking an unwanted distribution from the plan, owing taxes and a penalty if you can't pay it back immediately. Borrowing from your 401k can get costly and will put a significant dent in your retirement nest egg.
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14. Contributing Only Your Company’s Default Minimum to Your 401k
Putting your 401k contributions on autopilot can cause serious issues when it comes time to retire. Some employers make all employees contribute a minimum amount to their 401k, unless they opt out of the benefit. If your mandatory contribution is too small — for example, 2 percent of your pay — you will likely miss out on your savings goals, though.
In an era of pension and Social Security crises, employees must take greater control of their financial destiny by contributing more to their 401k.
15. Investing Too Conservatively for Retirement
It goes without saying that nobody wants to lose money on their investments. Being too conservative with your portfolio could cause you to come up short with regard to retirement savings, though. By taking a few risks, you can build a better nest egg and ensure that unexpected expenses don't leave you crippled.
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16. Withdrawing Your 401k Money When Leaving a Job
These days, it's not uncommon for workers to switch jobs multiple times over the course of their careers. Unfortunately, many people make the mistake of withdrawing their 401k money when they do so. Not only does withdrawing prior to retirement reduce the size of your savings account, but it also causes you to lose growth and face a potentially hefty tax bill.
17. Not Saving Enough for Retirement
Unless you are lucky enough to inherit a large sum or win the lottery, you will likely need to save a great deal of cash during your working years in order to retire comfortably down the line. Plan ahead to ensure you're putting enough aside for whatever the future holds.
18. Retiring Too Early
While everyone has fantasies about retiring at age 40 or 50, the reality is that few people can afford this luxury, thanks in part to longer life expectancies. No matter how large your nest egg might be — or how frugal your lifestyle — retiring too early can ruin your well-laid financial plans and affect your quality of life down the line.
19. Not Getting Full Employer Matching Contributions
If you aren't taking advantage of your employer's 401k matching contributions, you are missing out on a valuable opportunity to grow your retirement nest egg.
"This is a part of your compensation package and should always be utilized to the fullest extent," said Ryan Guina, founder of personal finance blog Cash Money Life. He recommended that individuals who can't afford to contribute enough should adjust their spending habits and lifestyles to take advantage of this "free" money.
20. Investing Too Heavily in Company Stock
Aspiring retirees might be tempted to invest in their own companies. Experts caution against putting too much of your money in one place, however. Even if your company's stock has performed well in the past, it's wise to diversify your retirement portfolio so your livelihood is protected.
21. Having Inadequate Life Insurance
Paying too little for life insurance now can affect your family's plans in retirement. Life insurance gives breadwinners the peace of mind that comes with knowing surviving spouses will be protected after they're gone. When saving for retirement, don't forget to invest sufficiently in this necessity.
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22. Not Having Disability Coverage
It's not enough to save for healthcare costs in retirement; savvy individuals also purchase disability coverage to pay for unexpected costs like illnesses or injuries. Typically constituting 60 percent of your former earnings, disability payments let workers maintain their previous lifestyles after an injury and prevent them from having to withdraw from retirement funds to afford basic necessities.
23. Saving for College Instead of Retirement
It's no secret that college tuition rates have skyrocketed in recent years. While it's natural to want to pay for your children's education, aspiring retirees shouldn't make the mistake of paying exorbitant college tuition bills at the cost of their own savings. The last thing you want is to be a burden on your kids in retirement because you neglected to save appropriately.
24. Ignoring the Impact of Inflation
Inflation is a major threat to your retirement, said Todd Tresidder, financial coach and founder of Financial Mentor.
"It's a hidden tax on savings. You have no control over it, it can't be predicted and it has an insidiously compound, erosive effect," he said. "It gnaws away at an otherwise healthy retirement like cancer to a healthy body."
Stay abreast of inflation costs to avoid unpleasant surprises down the line.
25. Faulty Decision-Making
Tresidder also cited bad decision-making by people saving for retirement as a significant risk. For instance, putting your money in a well-performing mutual fund in the belief that it will continue to climb higher is a perilous choice that is often based on wishful thinking. In the long run, making financial decisions based on bad assumptions and misinformation can result in negative outcomes and keep you from enjoying the retirement of your dreams.
26. Poor Asset Allocation
Poor asset allocation is a big threat to one's retirement, said financial advisor Kirk Chisholm. While the traditional advice is to subtract your age from 100 and use this value as the percentage of bonds in your portfolio, Chisholm and others recommend a more cautious approach. The fact is that investors can lose money in bonds or spend their time chasing yields, since rates are low.
"This is a mistake you don't want to make so close to your retirement," said Chisholm.
You might not expect boredom to be a big threat to your retirement, but it can be, said financial blogger and entrepreneur Jim Wang.
"Many people jokingly say that when they retire they'll play more golf, take more vacations and lounge around all the time, but that's only fun for a couple weeks," he said. "What happens in year two or three?"
Wang emphasized that soon-to-be retirees should plan for what they can work on during retirement in order to stave off boredom.
28. Neglecting Your Own Needs
Many aspiring retirees focus on the needs of others instead of their own self-interest, said author Valerie Rind.
"If you're too busy taking financial care of other people, you might find yourself excluded from your own retirement plans," said Rind. "For example, when you loan money to family members or borrow for your kids' education, you're tying up precious funds that could be invested toward your future."
29. An Unexpected Layoff
Unplanned job losses can be highly problematic for people planning for retirement, especially if they don't have funds set aside for emergencies, said personal financial expert Jason Vitug.
"I had a friend who was on track with his retirement savings until he got the call he would be laid off in 30 days," he said. "Unable to find a job that paid the same caused him to dip into his savings to cover the gaps from his old salary and unemployment benefits. He saved money in his 401k and in a Roth but never set up savings for an emergency or similar situations."
30. Lifestyle Inflation
More than other Americans, soon-to-be retirees need to be conscious of their spending habits and avoid buying more than they can afford, said personal finance blogger Chris Holdheide.
"This can be a huge threat to someone's retirement, because it can cause people to buy stuff based on their income as it increases, instead of putting more of it toward their retirement," Holdheide said. "Oftentimes, when we get an increase in pay, people tend to think about the next thing they want to buy right now rather than thinking about the future and saving more."
Stay aware of these retirement-saving roadblocks if you hope to build a robust bank account in the coming years.