Have no fear if a good retirement plan is near…
If the thought of retirement has you furrowing your brows in anguish, you’re not alone. The possibilities of high medical bills, running out of savings and not being to afford daily expenses are Americans’ top three concerns around retirement, a recent Bankrate.com survey reveals. Other factors like the viability of Social Security weigh heavily on some age groups.
But should you have a fear of retirement? Here are the top 3 things that are real worries and a couple common fears that should actually not concern you at all.
Real Retirement Money Worries: Paying for Medical Expenses in Retirement
According to Bankrate, more than a quarter of Americans, 28%, say their biggest financial worry about retirement is that their medical expenses will be too high.
And, in fact, this is a real thing that all retirees should worry about. Bankrate noted that a couple who retired in 2014 will need $220,000 to cover health care costs in retirement.
However, age plays a role in what Americans view as their greatest concern regarding retirement, the survey shows. Older Americans are more likely to be concerned about medical costs than younger generations. Among people over age 50, one-third are anxious about expensive illnesses or injuries. Just over a quarter of people ages 30 to 49 years old are worried, as well.
People ages 18 to 29, however, were half as likely to cite high medical costs as their top concern, compared with those over age 65.
The divide in concerns among different generations when it comes to retirement is common, says PJ Wallin, founder and lead advisor at Atlas Financial in Richmond, Va.
“It’s often that you find those nearing retirement focused on health care,” Wallin says. “I think naturally this is based on the fact that older folks feel the aches and pains a bit more than the younger folks who still have that sense of invincibility when it comes to health. Older folks have had more health issues along the way and recognize the costs a little more.”
Less of a Real Retirement Worry: Covering Monthly Retirement Expenses
Eighteen percent of people in the Bankrate survey said that they worry they won’t be able to afford daily expenses in retirement.
While many retirees face poverty, most Americans are pretty good at making ends meet on a monthly basis. So, it is likely that you will figure out a way to cut expenses in order to roughly pay for your lifestyle every month.
As a society, we are not terrible at short term planning. The bigger problem is long term planning.
Real Retirement Money Worries: Running Out of Money in Retirement
Twenty-three percent of the Bankrate respondents said that their biggest concern is that their savings will run out in retirement.
And younger people were twice as likely to say they fear running out of money in retirement – 33% compared with 16% of those over 65.
High debt accumulated through student loans and lack of revenue streams are among the more common reasons why Millennials’ are worried about running out of money in retirement, versus health care costs, says Wallin.
“For younger folks, retirement is a great big unknown,” he says. “There aren’t as many pension funds as there were back when our parents were working. As a result, people know that saving is [important], but there are so many buckets to fill that it is hard to focus. Many folks in their 20s and 30s are paying off student loans, so it is probably hard to feel like retirement is going to be secure.”
However, the reality is that everyone needs to worry about running out of money in retirement. Research indicates that the vast majority of people approaching retirement have not saved enough.
- How to Prepare for Retirement and Have Enough: The best way to avoid running out of money in retirement, is to have a really good and realistic retirement plan. A retirement planning calculator can be a great way to help you get your hands around what you need and what you have.
Not a Real Worry: Social Security Will Disappear
Nearly a quarter of those surveyed by Bankrate.com say they don’t expect to receive any money from Social Security. In fact, three in 10 people under age 50 believe Social Security will have run dry by the time they file for benefits.
But those views are unfounded, financial planners say.
While Social Security benefits might be reduced to some degree in the future, for many Americans Social Security offers a guaranteed revenue stream that can help replace some of the income lost through retirement.
If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your Social Security benefits.
For each year after that, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66.
If those benefits are tapped at younger than normal retirement age, they will be reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.
Use a Social Security Calculator to figure out the best time for you to start this benefit.
Real Retirement Money Worries: Not Saving Enough
Less than half of working-age Americans even have a retirement account, according to the Survey of Consumer Finances from the Federal Reserve. But why?
Thirty-three percent of respondents to the Bankrate.com survey say they’re not saving for retirement due to the cost of daily living. Family obligations or student loan debt are also reasons listed as their main obstacles to saving for the future.
Many Americans struggle to budget their money, affecting their ability to set aside funds for retirement savings, Wallin says.
“Society at large in the United States is a spending society,” he says. “Keeping up with the Joneses is a real problem.”
Another issue is that many of those in the workforce may rely too heavily on human resource departments at their place of employment to inform their savings strategy.
“We haven’t equipped human resource departments in America to assist with the financial education necessary to get people on the right track early,” he says, noting many people fail to make best use of 401(k) plans, or retirement savings plans sponsored by an employer.
- How to Prepare for Retirement and Save Enough: Prioritize retirement savings. In most budgets, it is possible to save. It is just a matter of making it a priority. If you work somewhere with a human resources department, go talk to them tomorrow about your company savings options. If you are on your own, then sit down and figure out an amount — any amount — that you can save this month and go open a retirement savings account. You might also want to use a retirement calculator to figure out how much you do need to be saving every month.
Whatever Your Age, Plan Your Retirement Now And Avoid Unnecessary Worry
The best way to squash fears related to retirement is to start planning as soon as possible, Wallin advises. “Start planning today,” he says. “Instead of letting it be an unknown, find a planner who focuses on goals-based planning and that will hold you accountable.”
And you don’t need to have a lot to start saving, he notes.
“Starting little is better than not starting at all,” he says. “Draw a line in the sand and don’t worry about the past. Focus on how you can get better today and move forward.”
A retirement calculator can be a great and easy way to get started. Working with a financial advisor is another way to nudge you toward a great retirement plan.
