Most workers look forward to leaving the rat race to pursue new interests, travel and spend more time with family and friends. But as retirement draws nearer, many Americans find themselves mulling over common fears.
“Rampant inflation, longer life expectancies and an unfavorable sequence of returns are all real variables that can impact an initial financial plan,” said Chris Buoncore, a senior wealth advisor and managing director at MAI Capital Management in Cleveland, in an email.
Below are some of the most common retirement fears shared by pre-retirees and how to address them.
[Related:10 Ways to Save More for Retirement]
Running Out of Money
Outliving one’s savings is one of the biggest retirement fears.
“With the price of everything from mortgages to groceries rising, it makes sense that folks nearing retirement are worried about not having enough to fund their desired lifestyle,” said Carlos Rodriguez, a certified financial planner at Edelman Financial Engines in Boca Raton, Florida, in an email.
Rodriguez said he encourages clients to begin planning for retirement as early as possible, especially as life expectancy continues to increase in the U.S.
“Planning what your ideal retirement might look like and using that as guidance can help curb fears that your money won’t last,” Rodriguez said.
Location and other expenses are important considerations, as some lifestyle choices will end up costing more than others.
Skyrocketing Inflation
Pre-retirees need to account for inflation’s potential to erode their spending power.
By recognizing the effects of inflation early, Rodriguez said, savers can dramatically improve their ability to retire comfortably.
He also noted that lifestyle upgrades due to promotions and higher income could mean pre-retirees should factor in higher expenses down the road. In addition, expenses such as health care costs and taxes often get overlooked when estimating retirement expenses.
“It is crucial to develop a plan that accounts for all of these factors and begin saving the necessary amounts in the appropriate investment strategies today, to have enough resources available tomorrow,” Rodriguez said.
[Related:How Long Will Your Retirement Savings Last]
High Health Care Costs
Health costs often increase as people age.
“High health care costs can be daunting, but having a good health insurance plan and setting aside savings specifically for medical expenses can help,” said Tyler Meyer, a certified financial planner and founder of Retire to Abundance in Kingman, Kansas, in an email.
Taking preventive measures to maintain your health before retirement can help you avoid costly issues down the line, Meyer added.
Stock Market Crash
The market rises and falls, although it trends higher over time. A market decline just before retirement or early in retirement can result in what’s called sequence-of-returns risk.
That’s the risk that the order of investment returns can hurt the longevity of a retirement portfolio. Just when retirees are beginning to make withdrawals, poor early returns can deplete assets and reduce future income.
However, investors don’t have to be caught flat-footed by a down market. Market declines are normal, but bear markets also occur on a regular basis. According to research from CenterPoint Securities, a bear market occurs, on average, every 56 months, or nearly five years.
“Knowing this, we can plan to reduce this risk by diversifying investments and setting aside a few years worth of expenses in low-risk investments like bonds and cash in order to let stocks recover without selling them for income,” said Jake Skelhorn, a certified financial planner and partner at Spark Wealth Advisors in Jacksonville, Florida, in an email.
Children Moving Back Home
According to 2023 data from Harris Poll and Bloomberg, nearly half of young adults between 18 and 29 live with their parents, the highest level since the 1940s.
Rodriguez said that Gen X, born between 1965 and 1980, are sandwiched between caring for aging parents and adult children who receive financial assistance. That can put pressure on retirement savings.
“While, of course, it is possible to care for adult children who have moved back home and keep retirement goals on track, it’s important for parents to put limits on their financial support,” Rodriguez said.
“Make sure to set expectations with your adult children upfront,” he added. “Do you expect them to chip in for shared groceries and utilities? Are there any conditions they must fulfill, such as chores, for you to accommodate hosting them?”
While setting expectations might be uncomfortable, he added, it will help everyone get on the same page with the arrangement and allows pre-retirees to objectively evaluate their financial ability to help adult children get back on their feet.
[Read: What Is a Good Monthly Retirement Income?]
Taking Social Security at the Wrong Time
Some Americans want to take Social Security as early as possible, but that could be a costly mistake.
Many retirees would be better served by developing a strategy to maximize their benefits instead of taking the benefit just because it’s available.
“If you are still working, don’t take Social Security before full retirement age because your earnings will significantly reduce your Social Security benefit,” said Rodriguez.
“If you have a long life expectancy, let’s say anything over age 82, then you will maximize your Social Security benefit by delaying to age 70,” he said. “If you reach age 62 and have a short life expectancy, say under 10 years, then it probably makes sense to start benefits ASAP.”
One mistake people make is basing their life expectancy on their parents’ life spans. That can result in underestimating how long you may live, as life expectancies have risen in recent decades.
Rodriguez said retirees who are married should consider how to maximize benefits over both partners’ life expectancies.
Financial Mismanagement
If retirees are uncertain of their ability to navigate the challenges of generating income and making their savings last, then hiring a retirement planner often makes sense.
“The key is to develop a plan that lists out their goals and finds planning solutions that can help them not only solve problems but have strategies that work in unison to make sure they aren’t missing a big area of concern in retirement,” said John Vandergriff, wealth planner and owner of Blue Ridge Wealth Planners in Knoxville, Tennessee, in an email.
“Planning doesn’t predict bad things that may happen in the future, but it gives you a good way to respond in the moment,” he added.
Too Much Debt
Debt drains anyone’s financial resources, but with less ability to generate income in retirement, it can pose an additional risk.
“Before hanging up your hat and stepping into your well-deserved retirement, take the time to pay down your debt,” Rodriguez said. “You won’t want that stress hanging over you while you try to enjoy your golden years.”
Reducing existing debt and limiting new debt accumulation can minimize the amount of retirement income that would be spent on interest payments.
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Common Retirement Financial Fears and How to Overcome Them originally appeared on usnews.com
Update 07/26/24: This story was published at an earlier date and has been updated with new information.
