Retirement Surprises: What I Wish I Knew About Retirement BEFORE I Retired
Last year, the Society of Actuaries (SOA) updated their 2017 Risks and Process of Retirement Survey, providing insights on how Americans decide to retire and manage resources in retirement.
The study revealed that for most people, retirement is full of surprises. Most retirees’ experience a life different in many ways from what they originally planned.
Here are a 9 things that surprised retirees. Use these findings to improve your overall retirement plan for a happier and more secure future.
1. You will make it work and be quite happy!
When it comes to retirement, planning is everything. Yet even the best-laid plans can be affected by unexpected events.
However, the good news is that we generally get happier in retirement!
After the stress of building careers and raising kids, most people’s happiness seems to actually increase in retirement.
In fact, you’ll likely be shocked to learn which two ages in an adult’s life are likely to be at your happiest.
Experts from Princeton University and the London School of Economics and Political Sciences found that happiness peaks at the ages of 23 and 69.
2. Home repairs and other unexpected emergencies can wipe you out.
The study found that “shock” events — retirement surprises — had a significant impact on the assets of many retirees. More than one in three respondents experienced financial shocks that depleted at least 25% of their assets.
The majority of retirees are worried about their ability to handle financial shocks:
Home Repairs: Only 18% of retirees are very prepared to handle home repairs. Home ownership is expensive. Repairs and maintenance, insurance and taxes and many of the most unexpected repairs are not cheap. From repairing a roof to replacing a broken furnace or air conditioning unit, home repairs can cost thousands of dollars and make a serious dent in retirement savings, especially for retirees who are often still paying off a mortgage.
When retirement is on the horizon, take a look at your home and consider what major repairs you might need to make in the next ten to 20 years. Either make them before you retire or set aside some money to take care of them in retirement.
If you are among those worried about potential home repairs, do consider downsizing and other ways to reduce your housing burden.
Car Repairs: Meanwhile, 27% of retirees feel very prepared to manage car repairs or replacement. Data from the Bureau of Labor Statistics, transportation costs are the second highest retirement cost — costing more than even healthcare.
Family Member in Need of Support: Retirees today run the risk of having to help their children AND their parents. We are the sandwich generation. And, only 8% of today’s retirees feel very prepared to help family members.
Setting aside funds for emergencies can help reduce your worry.
3. Many health care expenses will be paid out of pocket.
Earlier this year, Fidelity Benefits Consulting released their latest retiree heath care cost estimate, and it is again a sticker shock for people nearing retirement.
According to the report, a 65-year old couple retiring today will need an average of $280,000 (in today’s dollars) to cover medical expenses throughout retirement, up from $245,000 in 2015.
These costs include Medicare premiums, co-payments and deductibles, prescription drug out-of-pocket expenses. Also, as the report from the Society of Actuaries notes, most retirees do not have dental insurance and dental expenses are not covered by Medicare. Routine eye care, hearing aids and the exams for fitting them are also not covered by Medicare.
If you’re able, a great way to save for out-of-pocket medical costs before retirement is a Health Savings Account. Employees covered by high deductible health plans can put money into an HSA pre-tax during their earning years, then withdraw the money tax-free to use to health care costs later on.
4. Divorce is becoming more common for retirees.
A 2015 study by Bowling Green State University sociologists noted that the divorce rate for people over age 50 doubled between 1990 and 2010, from fewer than one in ten to more than one in four.
In most cases, divorcing couples split assets in half during the divorce settlement. All of a sudden, what may have been plenty of money to live on during your retirement years doesn’t look like much.
If you divorce during your working years, you have some time to work hard, and put money away to try to recover from the loss. But divorce during retirement means you’re out of time for making up those lost assets.
If you are worried about divorce, try:
- Exploring tips for divorce in retirement.
- Running a scenario using a the NewRetirement Planner with what your finances might look like after divorce.
5. Long-term care generally isn’t covered by Medicare.
If you become disabled, the cost of assistance with daily living tasks generally isn’t covered by Medicare. Most people dream of a retirement spent being active, golfing, traveling, gardening or just spending lots of times with loved ones.
Unfortunately, that dream doesn’t last long for a startlingly high percentage of retirees.
Someone turning 65 today has a 70% chance of needing some degree of long-term care services in their remaining years.If possible, buy long-term care insurance while you are young and healthy, while the coverage is expensive, the better your health and the younger you are when you purchase the coverage, the lower your premiums will be. There is also a tax break for buying this coverage, which can help lower your overall costs.
One of the most unique aspects of the NewRetirement Planner is that it let’s you “try on” different ways of planning for a long term care event. You can roughly model what happens if you buy long term care insurance, purchase a deferred income annuity or opt to have a relative care for you.
6. Dividend income may not be safe or stable.
In the past, retirees often financed a good percentage of their living expenses through stock dividends and interest payments on bonds. That strategy has its downsides. Many stable companies pay dividends, but investors can lose money when share prices drop or companies cut dividends.
One respondent in the SOA survey included the loss of dividends as one of the shock events that significantly impacted his retirement plans. “The biggest thing, about 18 years ago, I had a lot of shares of Citigroup and they were paying like $17,000 a year dividends. That went down to $30.”Other former big-time dividend stocks have imploded in recent years. Consider General Motors, who once paid a $0.50 dividend per quarter but suspended it in 2008. Barnes & Noble paid a $0.25 quarterly dividend from 2008 until it declared bankruptcy in 2011. Washington Mutual paid $0.56 per share in 2007 until the subprime mortgage crisis a year later when dividends were slashed to just a penny per quarter before the company declared bankruptcy.
Dividend investing can still be considered a good source of retirement income, but dividend-paying stocks should be balanced with other types of investments in a diversified portfolio.
- See the impact of dividend income on your retirement plan by entering it as “Other Income” in the NewRetirement Planner.
- Or, learn more about dividend income in Drip or Draw: What to Do with Stock Dividends in Retirement.
7. Inflation has a bigger impact in retirement than it did when you are working.
In the SOA survey, 76% of pre-retirees and 66% of retirees said they think inflation will affect the amount of money they need each year in retirement at least somewhat. Still, 19% of pre-retirees and 29% of retirees believed inflation would affect them only a little bit or not at all.
That type of thinking could be disastrous for retirement planning. Retirement planning that doesn’t take inflation into account may meet the needs of retirees early in retirement but fail to address their needs ten to 15 years later.
Consider that from 1913 to 2013 the average US inflation rate was 3.22%. While that sounds reasonable on a year-by-year basis, that rate of inflation means prices doubled every 20 years.
Making matters worse, inflation may only slightly increase the cost of goods and services from year to year, but in retirement, its impact is magnified when a dollar has less and less purchasing power. Retirees are also more affected by cost increases in certain categories of spending that general cost-of-living indexes may not emphasize, such as Medicare premiums, health care costs and long-term care expenses. Cost-of-living increases in Social Security benefits have not kept pace with increases in these categories.
Inflation can be one of the more damaging of the common retirement surprises.
The NewRetirement Planner allows you set and change your own pessimistic and optimistic inflation rates — giving you a better picture of your future.
8. Other unforeseen events in the financial markets can sink well laid plans.
The potential stock market declines or losses in the housing market are reasons to worry about retirement.
In fact, the research indicates that very few retirees feel ready for these financial shocks:
- Only 14% of retirees feel ready to deal with a drop in their home’s value
- 8% are prepared for the possibility of running out of assets
- 10% are ready for investment losses
In fact, managing your assets — your home and your savings — is important and complicated.
Many people do it themselves, but others seek help from a fiduciary financial advisor. NewRetirement recently introduced a low cost advisory service that harnesses the power of technology to deliver extremely valuable advice and guidance for a more secure future. Talk to us about your concerns today!
9. Working longer may not be possible.
The SOA survey found that today’s pre-retirees plan to retire at a considerably older age than current retirees actually retire. The median actual retirement age is 60, yet two in 10 pre-retirees said they plan to work at least until age 68 and 14% said they do not plan to retire at all.
While that’s an admirable goal, the fact is that many seniors are unable to continue working past normal retirement age. Surveys from the Employee Benefits Research Institute show that, since the economic downturn of 2008, about half of retirees left the workforce before they were ready. Some seniors are laid off from jobs they’d held for years; others have health problems that make working impossible. Even many “voluntary” retirements are actually pushed by companies offering early retirement packages or workplace cultures that are inhospitable to older workers.
Many retirees who find themselves in this position turn to “bridge employment,” a job that may be part time and pay less, but helps bridge the gap between their last job and full-time retirement.
The NewRetirement retirement calculator let’s you set different work income levels for the transition to retirement — giving you a more accurate and realistic plan.
Identifying potential gotchas and surprises as part of your retirement plans
While most retirees seem to just “roll with the punches” and adapt as financial troubles happen, it might be better to learn from people who are already retired and adapt “forewarned is forearmed” as your retirement motto…
Or, better yet, maybe the best strategy for your retirement is: “hope for the best, plan for the worst.”
NEW Confidence Rating in Retirement Planner! A new feature in the NewRetirement Planner guides you through the process creating a plan you can feel great about.
There are four phases to creating a reliable plan:
- Documenting adequate detail
- Achieving a plan where you have adequate savings given optimistic projections
- Anticipating retirement “gotchas” like the surprises described below in this article
- Maximizing your wealth
Create an account or log in right now to find out which phase you are in! The NewRetirement Planner makes it easy to create and maintain a plan.