Nobody really knows what retirement holds for them until they get there, but that doesn’t mean you shouldn’t plan or prepare for the day you give up your career for good. Plenty of retirees have gotten to this stage already, and here are some truths they wish they had known before retiring.
There are no guarantees for your retirement investments
While many people prepare for retirement with investments, they should know that there are no guarantees when it comes to their returns. Just ask some of the retirees who collectively lost $3.4 trillion in the Great Recession. As you approach retirement, rebalance your portfolio to protect against these risks to avoid being wiped out.
You may not have saved enough as a young person
The earlier you start saving money for retirement, the better it will be for your financial health. Because savings and investments compound over time, you may regret it if you wait until middle age to start saving for retirement, as it will not be as effective as putting that money away as a young person.
It costs more to live longer
According to the World Health Organization, life expectancies grew by 5.5 years between 2000 and 2016, which is great for global health, but it could also impact your plans. You will need to save more money for retirement than your parents did, even with inflation taken into account, because you will probably live longer than them.
You’ll make more from social security if you wait
While many countries offer some form of financial assistance to people who reach retirement age, that amount can change depending on when you claim it. In the United States, you will receive 132% of the monthly benefit if you wait until age 70 to start claiming it, which can help you as you get older and require more care.
Tax-planning is complicated
Depending on the country they live in, retirees are generally responsible for calculating and paying their own income tax. For retirees, whose income comes in the form of government assistance and tax-advantaged savings accounts, it can be difficult to optimize income to pay the least amount of tax, but careful tax-planning can save you a considerable amount over the course of your retirement.
You need to consider healthcare costs
Most nations, including the United States, provide healthcare to their senior citizens, but few of them provide complete coverage. The average American couple spends $280,000 on healthcare in retirement, which can include prescription medication, dental and vision care, insurance premiums or medical devices not covered by insurance.
You will probably need long-term care
Half of Americans about to turn 65 will require some form of long-term care in their retirement, according to Forbes, and that long-term care can cost quite a bit. While it’s possible that your children will be able to take care of you, it is by no means certain and you should make sure that you have enough saved to make sure you will be comfortable in this period.
Inflation will eat your savings
Retirement investments may put your retirement savings at some risk, but simply storing your cash in a savings account is a sure loser. Inflation will eat away at the spending power of your money faster than even the generous interest from a savings account, which is why experts recommend investments, even if you don’t like risk.
You can’t borrow for retirement
Throughout your life, you may finance your education, your home, your car and many other things through debt, but that’s not an option for retirement. Consider this if you want to pay for your child’s education, for example. Your child could pay back their own loans in the future, but you will never get that money back for retirement.
You should have contributed to your employer-sponsored plan
When employers offer to make contributions to your employer-sponsored retirement portfolio (such as a 401(k) in the United States), take them. An employer contribution to such a plan is an automatic return on investment, even if it forces you to put aside a portion of your paycheque for future use.
Your house is too big
Maintaining a house can be expensive, even if you’ve paid off the mortgage. Conventional wisdom says that you will spend 1% to 3% of a home’s purchase price on repairs and maintenance every year. If you raised your family in a large house, you may want to downgrade before you give up your career.
You should have bought property
Should you buy or should you rent? More people are asking themselves this question as property values rocket in desirable urban centres like New York or Toronto, but purchasing property can provide you with equity as you pay your mortgage off, whereas rent payments are simply gone forever.
You may have to work part-time
When you budget your retirement dollars, you may come to the realization that you don’t have enough savings to maintain a comfortable lifestyle. If this is the case, you may have to find yourself some part-time work, like over 30% of Americans aged 65-69, whether it’s related to your former career or not.
Your children may not be financially independent
It’s taking longer for young people to start their careers, even when they benefit from an expensive college education, according to the Harvard Business Review. This means that your children might rely on your finances for longer than you think. Even if you want to retire, you might not have enough savings to pay for your children.
Your parents may still require your assistance
With people living longer than ever, it’s possible that your parents might still be alive when you decide to retire, and that they may require your financial assistance for long-term healthcare needs. While it will be a blessing to enjoy your parents’ company in their twilight years, it can also be a financial burden.
You’ll have to think about what comes after death
Retirement can allow you to explore your interests and enjoy life, but it won’t make you any younger. As you get older, you will need to prepare your will, outlining inheritances and specific funeral arrangements. It may not be the most enjoyable part of your retirement, but preparing for death is, unfortunately, a part of life.
It’s hard to pay off debt in retirement
Paying off mortgages, car loans and credit card bills is a normal part of life, but it’s not very sustainable in retirement. Expect and plan to live on 70% to 80% of your pre-retirement income in retirement, which won’t allow you the same amount of leeway in paying off debts.
You may not be able to afford the retirement you want
Many retirees dream of travel, adventure and luxury when they finally give up their career, but the reality can be very different. The high cost of travelling means that you may be spending more time than you expected at home, or finding low-cost options rather than the luxurious vacations you once dreamed about.
Staying healthy will save you money in retirement
Taking care of your body will pay off in retirement as you can avoid the high costs of healthcare and the toll of frequent hospital visits or long-term care. While good health means you’ll live longer, it also means you’ll find it easier to save money, and to work into your retirement years if necessary.
You should have diversified your investments
There is no single portfolio that works for every person. While you may be comfortable taking bigger risks in your youth, you should ease out of these high-risk investments and diversify as you get older. Overall, the market tends to grow, while specific industries and companies can crater as the world changes.
You may have to follow family at some point
As you retire, your children will likely be starting careers of their own that may take them away from their hometown. If you want to be close to your family, or if you expect to live with your children in old age, you may have to move to a new place, whether or not that was in your original retirement plan.
You should have looked at the fees
The amount of fees you pay for your investments could have a huge impact on your retirement savings, with high-fee investments sometimes costing up to 50% of your return. You can avoid high fees by investing in ETFs, a low-fee investment option that tracks market indexes, rather than higher-fee mutual funds.
You could have used catch-up contributions
In some countries, such as the United States, individuals approaching retirement can make “catch-up” contributions to their tax-advantaged retirement savings plans. This is especially helpful for individuals who may not have saved much money for retirement when they were younger and may struggle to reach their savings goals.
It gets boring
Sometimes, the problem with having nothing to do is that, well, you have nothing to do. Studies show that this can lead to depression and even cognitive decline for some early retirees, but you can avoid boredom by ensuring that you have a full and rewarding social life, along with hobbies and activities to keep your mind and your body active.
Unexpected costs can be quite a burden
Annual budgets in retirement may not account for unexpected costs, such as the need for a new car, or the bill for a major home repair. Life doesn’t abide by tightly curated budgets, so ensure that you have an emergency fund in your retirement budget that will ensure you don’t break the bank when the unexpected happens.
You’ll probably only be able to spend a portion of what you spent before retirement
Financial advisers sometimes suggest you save enough to spend 70% to 80% of your pre-retirement income when you retire, and some retirees don’t reach those goals. While many retirees no longer have to worry about dependents in retirement, some will have to get used to their new financial realities.
Divorce is becoming more common among retirees
If the children have moved out of the house and your career has come to a close, you may be spending more time with your spouse, so you better make sure you want to be with them. Divorce rates for couples over 50 have doubled since the 1990s, which can be traced to greater longevity in retirement as well as a reduced social stigma toward separations.
You could be forced into early retirement
Early retirement isn’t always a choice. Often, people take an early retirement due to poor health or a late-career layoff, which stunts their ability to save money effectively and their ability to pursue the lifestyle they would like to live in retirement.
Dividends are not a reliable source of income
Some people hope to live off stock dividends when they retire, but companies may reduce or stop paying out dividends altogether if they’re not profitable. While retirees can still invest in stocks that pay dividends, they need to be mindful of the risks, and realize that those dividends may not always be there.
It can get lonely
Retirement is an exciting time for you to pursue your interests and live life to the fullest, but one in three retirees also find it very lonely. You can prevent loneliness by maintaining friendships from before retirement, keeping in touch with family, and filling your time with social activities.