Research reveals that 52% of the retired Americans are not able to maintain their standard of living after retirement. As much as 79% of the working population plan on taking up jobs even after retirement, because many fall behind their savings due to recession. So what are people doing? They are pushing their retirement age to a higher number, already working longer than ever because they are not in a position to retire.
Many expect that their cost of living will go upon retirement, but that may not be (and in fact is not) the case. Your utilities, groceries, and home and car insurance costs will not be any lesser and your healthcare costs will almost certainly be more. Even if you think your children will all be grown up, don’t bet on it. 15% of young adults (aged 25 to 35) tend to live with their parents.
Your goal is to recreate a life with the background conditions where you’ll have a lot of time to spend, but with lesser money. So, let us look over some problems you may stumble upon:
- People may live longer, but aren’t earning any longer.
Instead of basing your financial predictions assuming you’ll live up to 85, assume the base to be at least 100 and calculate how long your money will last.
- You may underestimate healthcare and insurance costs.
Health and life insurance needs change as you grow old. Make sure you have enough insurance to meet any long-term health issues or emergency health problems. Increase the contribution towards your savings account each year. Aim at saving at least 10% of your gross income.
- Not realizing the impacts of a stock market crash.
A stock market crash at that stage of your life can reduce your retirement lifestyle forever. So, investment in mutual funds is a better option than investment in an individual stock. Even though, mutual funds have lower returns, and have a complex fees structure, you are likely to get less hit by if the share market goes down some day.
- Not knowing when to collect your Social Security Benefits.
Don’t start collecting social security benefits until absolutely necessary. Try to delay these benefits until the year you retire, to receive a larger monthly check. If you have thought over delaying your benefits, make sure you sign up for medical benefits within three months of your 65th birthday, since the medical services get expensive if delayed.
Expect the unexpected and plan necessarily. The financial consequences of unplanned retirement are pretty heavy.