10 Financial Challenges You’ll Face in the First 10 Years of Retirement

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You’ve created a plan, you’ve saved toward your goals and now you’re finally retiring. While you’ll ideally be in for smooth sailing at this point, it is possible that you will encounter some financial storms in your early retirement years.

The best way to weather these storms is to be prepared. Here are 10 financial challenges you’re likely to face in your first 10 years of retirement — and how to move past them.

1. Market Volatility

Even the best-laid plans can get derailed by market volatility.

“Retirees may experience significant market volatility in the first 10 years of retirement,” said Scott Neu, accredited investment fiduciary (AIF), financial advisor at Reinke Gray Wealth Management. “This can impact their retirement savings, especially if they rely heavily on investment income.”

To be able to ride out any volatility in the market, Neu recommends the following: “Diversification, asset allocation and periodic portfolio rebalancing can help mitigate the impact of market fluctuations. Maintaining an emergency fund for short-term expenses can also reduce the need to sell investments during downturns.”

2. Longevity Risk

“People are living longer, which means their retirement savings must last longer,” Neu said. “Outliving their savings is a common concern.”

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To mitigate this risk, it’s important to have the proper withdrawal strategy in place.

“Financial advisors recommend a sustainable withdrawal strategy, such as the 4% rule, which ensures retirees don’t deplete their savings too quickly,” Neu said. “Annuities or longevity insurance can also provide guaranteed income for life.”

3. Inflation

Inflation can make it hard to make ends meet during your income-earning years, and it can put even more strain on your finances if you’re living on a fixed income.

“The rising cost of living can erode the purchasing power of retirees’ savings, making it challenging to maintain their desired lifestyle,” Neu said.

The key to withstanding the effects of inflation is making wise investments.

“Investing in assets that historically outpace inflation, such as stocks, can help,” Neu said. “Regularly reviewing and adjusting retirement income for inflation is crucial.”

4. Healthcare Expenses

“Healthcare costs tend to increase with age, and retirees may face unexpected medical bills,” Neu said.

The best thing to do is to prepare for the unexpected.

“Retirees should budget for healthcare expenses, consider Medicare supplemental insurance and explore health savings accounts (HSAs) for tax-advantaged healthcare savings,” Neu said.

5. Taxation

You might not be prepared for the impact taxes can have on your retirement nest egg.

“Retirees may not fully understand the tax implications of their retirement income sources, leading to higher tax bills,” Neu said. “Financial advisors can help retirees optimize their tax strategy by considering tax-efficient withdrawal strategies, Roth conversions and other tax-advantaged accounts.”

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6. Social Security Timing

Your instinct may be to take Social Security as soon as you are able to, but this may cost you down the line.

“Deciding when to claim Social Security benefits can impact the amount retirees receive over their lifetime,” Neu said. “Financial advisors can assess retirees’ unique situations and recommend optimal Social Security claiming strategies, considering factors like life expectancy, other income sources and financial goals.”

7. Lifestyle Adjustments

“Many retirees struggle with finding a balance between enjoying their retirement and managing their expenses,” Neu said.

Budgeting for “fun” expenses in retirement should be a part of your overall plan.

“Financial planning helps retirees set realistic spending expectations and develop a sustainable budget that aligns with their retirement goals,” Neu said.

8. Legacy Planning

“Retirees often want to leave a financial legacy to their heirs or charitable causes but may not have a clear plan,” Neu said.

Once again, having a robust plan is the key.

“Financial advisors can assist retirees in creating an estate plan, including wills, trusts and charitable giving strategies, to ensure their wishes are fulfilled,” Neu said.

9. Planning for Large Purchases

Even if you make a plan for your spending in retirement, it’s common to want to make large purchases you didn’t account for.

“Common deviations include home renovations, purchasing new vehicles and indulging in lavish family vacations that simply aren’t compatible with the established plan,” said Jeff Rose, CFP, founder of GoodFinancialCents.com. “Despite our warnings about how such significant cash outlays could jeopardize their retirement, many are willing to roll the dice and take the risk.”

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If you have yet to retire, be sure to set some extra funds aside for these purchases. If you are currently retired, meeting with a financial advisor can help you figure out the most appropriate way to withdraw these funds without derailing your savings.

10. Paying Off Debt

Ideally, you’ll have paid off your debts before retirement. If you do retire with debt, be sure to make paying these debts down a priority that is budgeted into your overall retirement strategy.

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