No matter where we are in our careers, thoughts often turn to retirement.
From the young person just starting out in the employment journey to the seasoned veteran who is counting the days until finally being able to retire in peace, the concept of retirement is filled with challenges, misconceptions, and even some surprises.
Retirement may not be all about relaxation and freedom; the reality is that retirement can be a lot of work on its own.
In this article, we’ll talk about some of the aspects of retirement that may surprise you. The goal is to prepare you for a retirement that is both enjoyable and free from financial stress.
Difficulty in Spending Retirement Savings
As responsible adults, many of us have spent our entire careers setting aside money for retirement. If done correctly – with a diversified retirement savings portfolio – chances are that the savings have grown over the years, thanks to the power of compounding interest and favorable market conditions. It may come as a surprise, then, that many retirees discover how difficult it can be to spend down that nest egg.
Throughout the process of retirement planning, we have been programmed to save, save, save. Now that retirement is here, the concept of spending that hard-earned savings seem alien and more than a little discomforting.
Retirement planners and financial professionals alike must oftentimes encourage their clients to spend down the retirement savings; in effect, giving their clients permission to spend their own money.
Government Retirement Benefits Aren’t Enough
It is an unfortunate fact in the United States that most of us do not save enough for retirement. One of the factors that influence this is the misguided belief that government-sponsored retirement benefits like Social Security, Medicare, and pension plans will provide all the funding we need after we retire. The sobering truth is that these benefits are simply not enough. Let’s look at some of the particulars behind these government retirement benefits:
- The average Social Security benefit is just over $1400 per month. Multiply that by 12 and we arrive at a figure around $17,000 in annual retirement income.
- The maximum retirement benefit under the Social Security program is based on the age in which one files for the benefit. Assuming you reach the age of 66, or the “full retirement age”, the maximum benefit is $2639 per month.
- Average benefits over a lifetime in the Medicare program come out to about $180,000. That may sound like a lot, but these benefits are paid over a number of years – sometimes 20 or more.
When we look at these numbers, it is clear that our expenses in retirement are hardly covered by government retirement benefits. The solution to this shortfall is to start saving right now with retirement plans of your own. Relying solely on government benefits is a recipe for failure. A retirement planning professional can help you get started with a portfolio that will provide the funding you need to retire comfortably. This can include a variety of investment strategies and accounts, from annuities to Individual Retirement Accounts (IRAs), life insurance, stock and bond investments, and more.
Retirement Savings Must Continue to Grow
It may sound counterintuitive, but after saving all that money for retirement, it is still incredibly important that those assets must continue to grow in value. What does this mean? In simple terms, it means that saving enough to retire should not be the final goal; rather, developing a plan to make your retirement assets last the rest of your life should be the real goal.
The key to this is allowing the bulk of retirement savings to remain in place, where they will continue to grow in value due to interest rates, and only make the withdrawals needed to pay for expenses. In other words, taking a lump sum of all your retirement savings can negatively affect the overall value, and may subject you to significant tax implications.
Minimizing risks in investments is one way to preserve the value of retirement assets. Taking advantage of tax-deferred or tax-free investment/savings opportunities is another. A retirement planning professional can help you develop strategies that allow you to invest wisely, gain asset value, and protect that value for the years after you retire.
Retirement Can Be Lonely
Many people discover that after they retire, they’re no longer as active as they once were. Going to work every day offers some measure of social interaction with others; once that is taken away, many retirees find out that their days may be spent in isolation. This can have profound effects, causing people to feel a loss of purpose.
To counteract this lost purpose and the feelings of loneliness, retirement experts suggest developing hobbies outside the home. Retirees have many options when it comes to engaging with others, from social clubs to hobbyist groups, outdoor clubs, and activities. Volunteering is another great way to regain lost purpose and to make connections with others. Retirees often delve deeply into volunteer programs, such as giving time and effort to services for the underprivileged.
By remaining active and taking part in volunteer opportunities and outside-the-home interactions, retirees can continue to lead productive, engaged lives.
Retirement May Mean Help from Others
As we age, we are often no longer able to do the tasks that help us lead our daily lives. Depending on health, simple tasks such as cooking, bathing, and dressing can become difficult. It’s a fact that retirees need a support system, regardless of their health status, and this is especially true for those with debilitating illnesses.
Planning for a support system in the future is part of the overall retirement process. Long-term care insurance is one way of preparing for the future, as is investigating the possibility of retirement homes and long-term care facilities.
In a perfect world, our family members pitch in to help with daily tasks, but it is crucial to remember that our families typically have commitments of their own and may not be able to assist in the manner we need. Setting up a contingency plan for the future is a smart move, and can help ensure a comfortable retirement.