Many seniors come to the end of their lives unprepared for the financial realities of retirement. You don’t want to be one of them.
To make sure you have a clear idea of the financial challenges you’re likely to face as a senior, here are three retirement surprises you need to prepare for now.
1. You may need to retire earlier than expected
Many future retirees plan to work until their sixties, often for financial reasons. Unfortunately, staying at work for that long may not be possible. In fact, unplanned early retirement is very common.
If you’ve built your retirement goals around a paycheck until late in life, it’s a terrible surprise to find that it won’t happen. You may not have saved enough, and Social Security may not offer you as much income as you expected if you were relying on late payments to increase your benefits.
To avoid falling victim to this surprise, assume that you will quit work and claim Social Security at 62 when setting your savings goals. Taking this approach will force you to save more. It also means that your retirement account balance will be large enough to support you, even with early retirement and a reduced Social Security check.
2. Your expenses may not go down as much as you think.
Many people base their retirement goals on the assumption that they will only need 80% of their pre-retirement income to maintain their standard of living. This is because people assume that they won’t need to save as much and their expenses will decrease in other areas as well.
The reality, however, is that you can just cope different expenses as a senior. It turns out that expenses don’t go down much for a lot of people. If you are one of them, you might face a lack of savings.
Rather than betting that you’ll cut your spending by 20% and be surprised it doesn’t, make your retirement plans assuming you’ll need to replace 90% or even 100% of pre-retirement income. . Again, it’s better to have too much money than too little.
3. Your health care is likely to be very expensive.
Speaking of expenses, chances are, health care is one of your biggest. Unfortunately, this may come as a surprise to retirees who relied on Medicare to cover everything.
Medicare actually comes with high coinsurance costs, there are premiums and deductibles, and some common health care needs – such as dental care and hearing aids – are not covered. The reality is that the average 65-year-old retiring today could face medical costs of around $ 300,000. And if you are far from retirement, that number is likely to increase.
Preparing for huge health care costs is a lifelong endeavor. If you qualify for a health savings account, investing in it throughout your career can help you be prepared. If you don’t, consider health care expenses when deciding how much to contribute to your 401 (k), IRA, and other retirement plans.
If you’re surprised by your spending habits, healthcare needs, or unexpected early retirement, you could find yourself in dire financial straits. The good news, however, is that now you know you are likely to face these challenges in your later years, and you can prepare to meet them.