6 Retirement Derailers to Sidestep
There are common obstacles that retirees often confront as they plan for a life after work. It is reasonable to assume that you’ll have similar hurdles to overcome.
Whether you are focusing on your own future, or supporting others in theirs, becoming aware of these potential roadblocks ahead of time may help you to avoid them, or at least traverse them more decisively.
Turning on Social Security before Planning
There’s a popular axiom out there and there’s a good chance you’ve heard it. Take Social Security benefits as soon as possible — before it goes bankrupt. And a lot of people are listening to it. In 2020, nine in ten retirees were reported to have elected to take Social Security, with the median age of starting their benefit being 62.1 But, just because everyone else is doing it, should you?
Let’s look beyond heresy, and for a moment, consider this — Social Security benefits are structured to rise about 8% for every year that you delay receiving them after you become eligible. Is waiting a few years to apply for benefits an idea you might consider? Filing for your monthly benefit before you reach your full retirement age can mean comparatively smaller monthly payments throughout your lifetime.2
According to the Society of Actuaries, for seniors in relatively good health or seniors who do not have a spouse that depends primarily on their benefit, delaying Social Security “often is the best strategy for a household seeking to increase annuity income.”3
An important side note to consider – for a myriad of reasons, many retirees choose to go back to work. Going back to work after you turned on Social Security may be far more cumbersome than you would have willingly bargained for.
Choosing when to turn on your Social Security benefit is not a decision to make lightly, that’s for sure. If you’re looking to figure out an ideal date for you to take Social Security and how to best leverage it, we’re here to help.
Insufficient Budgeting for Medical Costs
More often than not, retirement planning presents itself as a paradox. Pre-retirees, retirees, and their families often believe they’ll be blessed with relatively good health, which will likely continue into the foreseeable future. At the same time, when planning for retirement they under estimate the expenses of care needed by the aging, the potentially ailing, and the loved ones in need.
So, what does this look like in retirement today?
One report in 2023 estimated that the average couple retiring at age 65 can expect to need $315,000 to cover health care expenses during the course of their retirement, even with additional coverage such as Medicare Part D, Medigap, and dental insurance.4
If you are planning for, or currently in retirement, having a proactive strategy in place can help you to be better prepared for insurance and medical costs as you age. In 2022, estimates show that 15% of your current day living expenses should be allocated to health care expenses, every year in retirement.5 That’s a lot of numbers to extrapolate. It may be helpful to talk with a qualified financial professional to garner some useful perspective.
Imbalanced Expectations
Your Go-Go Years, Slow-Go Years and No-Go Years may last far longer than you had anticipated when planning for your finances in retirement.
Actuaries in the Social Security Administration projected in 2023 that a 65-year-old man has a 34% chance and a 65-year-old woman has a 45% chance to live to age 90. The prospect of a 20- or 30-year retirement is not only reasonable, but the likelihood is high, and the SSA recommends planning for longevity.6
Research published in 2021 warns that a woman who retires at age 55, on average, should estimate for her savings to last for 28.6 years. A woman who retires at age 65 needs to plan for her savings to last 20.4 years.7
The research went on to say that a man who retires at age 55 should estimate for his savings to last, on average, 25.1 years, whereas men who retire at age 65 should aim for 17.8 years of savings.7
For couples who both make it to age 65, there’s a 25% chance that the surviving spouse will live to age 98.7
Understating Withdrawals in Retirement Planning
You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually.
News articles love having a headline recommendation that makes planning for retirement sound easy. Admittedly, each person’s situation is unique and having some guidelines can help you prepare. But the 4% rule has been a bit out of favor for some time. It’s not particularly meaningful to retirees who are out there, living their lives, and it is often a far cry from what percentages many retirees are actually spending. Perhaps a newer estimation may strike a chord.
In 2022, it was reported that the average American worker should expect, as retirees, to spend between 55% – 80% of their current income amount throughout their retirement annually. When choosing a more active retirement or one with expensive past times, the percentage of your current wages is likely to be far higher than 55-80% of your current annual income.7
Taxation without Consideration
Some people enter retirement with investments in both taxable and tax-advantaged accounts. Which accounts should you draw money from first? Are there tax-advantaged methods to receive income in retirement? To answer such questions, a qualified financial professional, such as a Certified Public Accountant working with a Certified Financial Planner™ professional, could be very beneficial to your financial situation, helping to knit together a plan, woven within the framework of your goals and risk tolerance.
Hefty Expenses, Like College
Retirees are often benevolent. They want to help their family and their communities. Oftentimes, that may include helping loved ones with the purchase of a home, a car, or even their education.
But there is no formal “financial aid” program for retirement. Unlike when applying for college, there are not places that you can go to specifically get “retirement loans.”
If your goal is to help someone pay for their education, it may be wise to use a qualified financial professional as a resource. It is prudent before making such a large investment to review your anticipated income and expenses before you commit to a long-term strategy of helping others.
It’s important to have someone looking out for your financial well-being while you are lifting others up. Having your own financial advocate can help to provide you with the resources and answers you’ll need so that you can make a balanced decision between your retirement and helping others with significant expenses, such as the cost of college for your children or grandchildren. We’re here to help.
- TransAmerica Center for Retirement Studies, 2020
- SSSA.gov, 2023
- Managing Post-Retirement Risks: Strategies for a Secure Retirement (soa.org)
- Fidelity.com, 2023
- Fidelity.com, 2022
- LongevityIllustrator.org, 2023
- AARP, 2021
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