Though retirement is often referred to as your golden years, many people think their retirement will be anything but relaxing. In fact, one if four Americans fear they will never be able to retire, found a GOBankingRates survey.
Even if you haven't done much retirement planning, that doesn’t mean your senior years will be spent homeless and hungry. Read on to find out why retirement isn’t as scary as you think — even if you're one of the many Americans who will retire with small savings.
You Might Not Need as Much as You Think
It’s hard to make it through the day without hearing about the huge amount of money you need to make ends meet in retirement. However, you should find out how much you need to retire in your state.
According to a recent GOBankingRates study, four states — Mississippi, Arkansas, Oklahoma and Michigan — require less than $1 million to retire. And, you can retire in another 22 states with under $1.1 million. Keep in mind those figures don’t include income from Social Security, so the amount you need in your retirement accounts could be even less.
Working Part Time Offers Benefits Beyond Money
Working part time during retirement can help you make ends meet. Though your ideal retirement might not include working at all, part-time employment has benefits beyond just the paycheck.
First, retirement can be isolating, and continuing to work part time can provide social opportunities. In addition, continuing to work can provide both mental and physical challenges, depending on where you work.
Finally, if you find a job that comes with benefits, you might get insurance at a much lower price to stretch the dollars you have saved.
You Can Take Advantage of Senior Discounts
When you become a senior, many businesses, restaurants and services offer senior discounts.
You can find discounts at places like clothing stores, grocery stores, movie theaters and gyms. Plus, your utility companies might give you a break on monthly bills. The age to be eligible for senior discounts varies by business.
For example, a Senior Pass to the national parks requires that you be at least 62 years old, while Harris Teeter grocery stores and AMC Theaters give you a senior discount starting at age 60.
The Average Spending Goes Down
Typically, retirees spend only about 80 percent of what they spent during their working years. Though healthcare costs typically increase, costs of food, transportation, housing and amusement decline. Plus, you don’t have to save for retirement anymore, so if you were putting 10 percent of your income in your 401k or IRA, that’s a 10 percent cost reduction by itself.
For example, some retirees find they only need one car, or they go carless, which cuts not only gas costs but also insurance, maintenance and registration fees. This isn’t true in every case, but if you plan your budget and stick to it, you can live comfortably on a lot less than you were used to.
Social Security Isn’t Going Broke
Don't fall for one of the many Social Security myths floating around. For example, you might have heard that Social Security is going broke by 2034.
While it’s true that the Social Security trust fund is expected to be depleted by 2034, there will still be Social Security tax revenues to continue to pay benefits. Those taxes are projected to be able to pay about 77 percent of current benefits, and that assumes no changes are made to solidify the program.
Nobody wants a 23 percent cut in their income, but keeping 77 percent of your benefits is a lot better than losing them entirely.
Medicare Isn’t Bankrupt, Either
Rumors of Medicare’s demise are also exaggerated. Medicare’s trust fund is expected to last until 2029, but like Social Security, that doesn’t include the annual revenues from the Medicare tax. Those taxes are expected to cover 88 percent of the benefits currently provided by Medicare Part A.
But there could be changes made to Medicare in the future that could increase or decrease benefits. Though healthcare costs are typically higher in retirement, using a health savings account now can help you take advantage of big tax breaks and save for future medical expenses at the same time.
Downsizing Can Lower Housing Expenses
Lenders aren’t allowed to issue mortgages that take up more than 35 percent of your monthly income, and most won’t go above 28 percent. However, even if you’re only paying 20 percent of your income for your mortgage, that’s still 20 percent that will be freed up once you pay off your mortgage.
If you won’t be completely mortgage-free by retirement, moving to a smaller home can reduce your mortgage payment, as well as costs for maintenance, landscaping, utilities and real estate taxes. Plus, you won’t have nearly as many household chores to do, giving you more time to do the things you love.
You’ll Pay Less in Taxes
Whatever you’re used to earning while you’re working includes a decent chunk going to the government in the form of income taxes. Once you aren’t working anymore, you don’t have to budget for paying Uncle Sam as much each year.
Yes, distributions from traditional IRAs and 401ks — and potentially some of your Social Security benefits — count as taxable income. But that income isn’t subject to Social Security taxes and Medicare taxes. In addition to income tax savings, your age might also qualify you for real estate tax breaks, depending on where you live and your income.
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You’ll Have Flexibility to Travel
When you’re working a full-time job, vacation travel is often limited to weekend and holiday flights, when ticket prices are most expensive. However, once you’re retired, you’re free to take vacations whenever you want, including when fares are the lowest.
In addition, some airlines offer special senior discounts, including Southwest Airlines and United Airlines.
Flying isn’t the only mode of transportation that offers senior discounts. If you want to see the country by train, Amtrak offers 15 percent off if you’re 62 or older. If you’d rather enjoy the open seas, Carnival offers special discounts on cruises if you’re over 55.
Your Hobbies Can Save You Money, Too
Though some people spend more in retirement, you don’t have to. With your newfound free time, you can read all those books you never got around to. And by using a library card, you can check them all out for free.
Or, for example, when you were busy working full time, you likely lacked the time to cook and bake. So, you were stuck paying more to eat out on a regular basis. With more free time in your day, you might find that not only do you enjoy cooking, but you also save money in your budget.
Similarly, because you have more time, you can take on more do-it-yourself projects around your house and save even more money.