Budgeting for the 4 Phases of Retirement

Budgeting for the 4 Phases of Retirement

By AMY FONTINELLE

 Updated Jan 10, 2020

 

If you’re prepared financially and physically healthy, retirement can last decades. The four stages of a long retirement have different expenses and require distinct approaches to budgeting. Even with a shorter retirement, you’ll go through the same stages, just in a condensed time frame. Here’s what those stages look like and how to handle your finances accordingly.

Peri-Retirement (50 to 62)

Peri-retirement is the stage just before retirement. You’re still working, but retirement is approaching and you’re finally getting a clear picture of what your nest egg, income, and expenses will look like. You’re also getting closer to figuring out what you’ll do with your days once you’re free to fill them as you please. What seemed merely theoretical earlier in your working life starts to seem real. We put age 62 on it, the age when people first qualify for reduced Social Security payments.¹ But some people might retire at 60 while others keep working past 70.

KEY TAKEAWAYS

• Retirement can last decades when one is physically healthy and financially prepared.
• The four stages of retirement are different and require distinct approaches.
• The phase before retirement—the peri-retirement stage—occurs between the ages and 50 to 62; it is an important time to begin planning retirement needs like monthly expenses and homeownership.
• Early-retirement can happen between the ages of 62 and 70, which is a time when some people consider taking part-time jobs to help manage expenses.
• It makes a lot of sense to revisit asset allocations during the middle retirement stage—ages to 70 and 80—and make sure estate planning is in order.
• After the age of 80, the late retirement stage begins and long-term care insurance can ease some of the burdens of healthcare expenses.

At this stage, asses your likely income and expenses after you exit the workforce. What will you receive from a pension or Social Security? What are the balances in your retirement plans, such as 401(k)s, 403(b)s, or IRAs, and how much will you be able to withdraw each month? Will you have paid off your mortgage, and if not, how much do you still owe and for how long?

You may be in a strong enough position financially to seriously evaluate whether you can afford to retire early. Your employer might downsize, and you might find yourself considering whether to accept a buyout or be forced to accept one. If you run a family business, this is a good time to create a succession plan. And if you have not yet reached your financial goals, it's a good time to work more hours, change jobs, or actively pursue a promotion so that you can add to retirement savings.

Peri-retirement is also a good time to reevaluate your monthly and annual expenses and cut back on costs that have crept up over the years. Eliminate any wasteful spending and give your retirement budget some breathing room. Also, at this stage (as well as, possibly, the early stages of your retirement), you may still have major expenses like putting your kids through college, making a down payment on a home, or paying for a wedding. Finally, you might want to replace your usual vacations with trips to places you’ve envisioned yourself moving to during retirement. 

Early Retirement (62 to 70)

Some of the biggest changes in your budget will occur when you first retire. You’ll no longer receive a steady paycheck, unless you have a pension. You’ll need a plan for managing your income during retirement, and you’ll need to decide when to start claiming Social Security benefits. You might also lose employer-sponsored health insurance. Make sure to plan for how your spouse and any dependents will get health insurance if they are on your health plan. If you or your spouse won’t be old enough to enroll in Medicare yet, you’ll need to see if you qualify for Medicaid or you might buy a private health insurance plan. 

You might also want to buy long-term care insurance if you haven't already (some experts advise buying it in your early 60s for the most choice and best rates). Premiums can reach several thousand dollars a year, but that's a bargain if you find you need nursing home or other long-term care.² 

You may be tempted to go on a spending spree at this early stage of retirement. You'll have a lot of free time, while still healthy and energetic. In this phase, you might want to buy that sports car you’ve always dreamed of, take an extended European vacation, go to culinary school, or take up sailing. With more freedom to travel, you may want to buy a vacation property in your favorite spot or a second home in a sunny locale to escape to during harsh winters. Hold back on huge expenses—you can quickly blow through your savings if you treat retirement like winning the lottery. 

One way to manage new expenses in early retirement is to take a part-time or seasonal job, start a business that gives you flexibility in your hours, or perhaps take a break for a while before jumping into a new career—the one you could never get into before because it didn’t pay enough. Earning $35,000 a year doesn’t cut it when you need $70,000, but once you’ve retired, it looks better than earning nothing, and at this point, it’s more about personal satisfaction, anyway. You can also balance the expensive activities you want to spend time on with inexpensive or free ones: volunteer to train service dogs, teach a photography class at your local community center, or lead biking excursions.

63 Years Old

The average retirement age in the United States, according to the U.S. Census Bureau.³

This might be the time to move somewhere more desirable now that your job no longer ties you to a certain location. There will be costs associated with moving, as well as possible transaction costs associated with selling your home. Have you ever dreamed about retiring in Ecuador, France or Monaco? Depending on the cost of living where you currently reside versus that where you’re headed, moving could be a boon to your financial situation—or a major belt tightener!

Middle Retirement (ages 70 to 80)

By middle retirement, you’ll likely be receiving Social Security benefits (the longest you can hold off from claiming benefits—and get increased payments—is age 70).¹ At age 72, you’ll have to start taking required minimum distributions from certain types of retirement accounts: profit-sharing, 401(k), 403(b), 457(b) and Roth 401(k) plans, as well as most types of IRAs (but not Roth IRAs).⁴ This is also an ideal time to revisit your asset allocation, if you aren't in an investment that does this automatically, such as a target date fund.

In addition to receiving more income in this stage, you might be tired of some of the travel and new activities you pursued during early retirement, so your expenses might decrease. You might want to travel less and stay home more, or your travel might be centered around less expensive trips to visit your grandchildren and other friends or family. With luck, your kids are established enough in their careers that they no longer turn to you for money. Also, you probably aren’t paying for term life insurance or long-term disability insurance anymore because these policies typically expire when you turn 65.

You might have created a will or estate plan when your children were younger because you wanted to make sure that, if something happened to you, they’d be taken care of. Have you updated these documents since then? While you’re still healthy and mentally capable, make sure your estate plan is in order, so your money and assets are distributed the way you want after you pass away.

You might want to give someone financial power of attorney that kicks in if you become unable to manage your money and healthcare power of attorney, in case you need someone else to make your medical decisions.

Late Retirement (80 and up)

In late retirement, you will likely have increased healthcare costs because medical spending tends to be highest in the last years of life. Medicare will cover some of your expenses, but you’ll still have costs for such things as co-payments, deductibles, coinsurance, and/or prescriptions.⁵ ⁶

20 Years

The average retirement length, according to the government data.⁷

You might have new expenses in late retirement if you move to an independent or assisted living facility or if your health means you need to move to a nursing home or hire a home health aide. If you have long-term care insurance, it will ease the burden of any nursing home or home health aide bills. Aside from a possible increase in healthcare costs, your other expenses will be similar in late retirement to what they were in middle retirement unless you make a major change, like moving.  

You’ll want to reassess your nest egg and decide whether you should be withdrawing money at a faster or slower rate. If you’re running low on cash and you still live in your home, you might consider a reverse mortgage as a source of funds. Looking at what you have left, you’ll need to think about what you want to spend during your lifetime and what you want to leave to others. Make sure any charitable bequests are in place. 

The Bottom Line

Retirement is both an event and a process. In one plausible scenario, your benefits and savings must cover your expenses for three decades or more. The expenses at each stage of retirement are associated with how you choose to spend your time, where you decide to live, and how your health holds up. If you take these factors into account and evaluate how they will change throughout retirement, you can budget accordingly.

At each stage, spend the time to crunch the numbers and draw up those budgets. It's the best way to understand where you are and what to do next.

31 Surprising Facts About Retiring You Probably Didn’t Know

31 Surprising Facts About Retiring You Probably Didn’t Know

Prepare for how to handle your money and free time.

 

By Michael Keenan

 

It’s never too early to start thinking about how you want to spend your time — and your money — in retirement. No matter if you’re hoping to retire as early as possible or plan to work until you can’t, having a plan for how you want to spend your senior years turns dreams into reality.

1. Social Security Won’t Cover All Your Expenses

Social Security isn’t designed to be your only source of income during your golden years. According to the Social Security Administration, Social Security benefits are only intended to replace about 40% of your income from when you were working.

2. Older People Value Older Workers

Baby boomers think that workers ages 50 and older contribute more to the workplace than younger generations in a range of categories. For example, 51% of baby boomers think that older workers are more adept at solving problems, while only 22% of millennials think the same of boomers.

3. Seniors Like Movies

People ages 50 and older make up almost one-third of all trips to the movies in the United States, seeing an average of 6.8 movies per year, but 70% of the time they go before 7 p.m. And, as people get older, they tend to see more: According to AARP, people ages 65 and older see 7.3 movies per year.

4. Pennsylvania Has the Second-Highest Proportion of Seniors

Given its reputation, it’s no surprise that Florida has the largest percentage of its population as senior citizens at 17.3%, according to the most recent 2010 census. However, the next two might surprise you: Pennsylvania at 15.4% and West Virginia at 16%.

5. Seniors Live Alone

According to the Institute on Aging, nearly one in three seniors who weren’t in a nursing home lived alone, with older women almost twice as likely to live alone than men. And, seniors get more isolated as they get older: Nearly 1 in 2 senior women over age 75 live alone.

6. Who Matters More Than What

When asked which was more important, the leisure activity they were doing or the people they were doing it with, over 60% of respondents in a Merrill Lynch study said who they were doing it with mattered more than the things they were doing in retirement.

7. Retirees Relax More

Older people relax more, said Brian Saranovitz, co-founder of Your Retirement Advisor and investment advisor representative with Cetera Advisors. According to a Merrill Lynch study, only 41% of people ages 25 to 34 reported often feeling relaxed, and over 70% of people ages 65 and older reported often feeling relaxed.

8. Social Security Might Not Be Taxed By Your State

The IRS taxes up to 85% of your Social Security benefits, but depending on where you live, you might not have to pay state income taxes on your Social Security benefits. Only 13 states impose state income taxes on all or a portion of your benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

9. Retirees Love To Travel

According to a survey by AARP, 99% of baby boomers traveled for fun, with the average senior taking five trips. When you count people ages 50 and older, the group spends about $125 billion on leisure travel each year.

10. Most Haven’t Budgeted For Trips

About two-thirds of retirees ages 50 and older said they hadn’t budgeted for travel in retirement, according to a Merrill Lynch study. Plus, over 50% said they had done hardly any leisure travel planning for the year ahead, and only 10% said they had done a lot.

11. Retirees Think They Have Plenty of Life Left

Just because someone has retired doesn’t mean they expect to die in the near future. When the Transamerica Center for Retirement Studies surveyed baby boomers, 21% expected to live between 90 and 99 and another 10% expected to live to age 100 years old or older.

12. The IRS Offers Free Tax Help for Seniors

You probably won’t look forward to doing your taxes in retirement any more than when you were younger, but the IRS has a special program, Tax Counseling for the Elderly, to provide free tax assistance to people ages 60 and older. You can get answers to questions, and some programs can even prepare your return for you.

13. TV Watching Becomes More Common

People ages 65 and older watch the most TV per day of any age group, according to the Bureau of Labor Statistics’ American Time Use Survey released in 2017. According to the survey, seniors spend about four hours per day watching TV, compared to two hours for people ages 15 to 44.

14. Seniors Think Green

Almost 70% of people ages 50 or older recycle regularly, and over 70% use energy-efficient bulbs. But, only about one-third buy locally grown food and about 2% own or lease hybrid vehicles.

15. Retirees Could Still Be Paying Off Student Loans

If you think you won’t have to worry about student loans in retirement, you could be wrong. According to the Consumer Finance Protection Bureau, the number of older student loan borrowers — defined as ages 60 and older — increased by at least 20% in every state between 2012 and 2017. In more than half of states, the number increased by 46% or more during the same time period.

16. Retirees Like Their Rewards Program

Over 80% of boomers belong to at least one airline loyalty program and over 70% belong to a hotel loyalty program, according to AARP. That’s about 10 percentage points higher than millennials in both categories.

17. Retirees Use Airbnb

Over 1 million users of Airbnb are over age 60 around the world, reported a Merrill Lynch study, including 10% of hosts. These hosts make an average of $6,000 per year. Retirees can generate income by renting out a spare bedroom or guesthouse.

18. Retirees Are More Likely to Directly Own Stocks

According to the 2016 Survey of Consumer Finances (the most recent survey available), the Federal Reserve found that people ages 75 and older were the most likely group to directly own stocks. People ages 65 to 74 were the third most likely to own at 15.2%, just below the 55 to 64 age group at 15.5% directly owning stocks.

19. Retirement Doesn’t Mean You Stop Working

Over half – 54% – of baby boomers plan to keep working after they retire, according to the Transamerica Center for Retirement Studies. But, it’s not all for financial reasons. Some baby boomers plan to keep working by choice so they can age well and stay busy.

20. Retirees Have Spending Money

Retirees are getting richer. According to the Fed’s Survey of Consumer Finance, the average net worth for people ages 55 to 64 is over $187,000. For people ages 65 to 74, that figure increases to over $224,000, and for people ages 75 and older, their average net worth is almost $265,000.

21. Retirees Part With Their Businesses

Business ownership is at 17.3% for both the 45 to 54 age group and the 55 to 64 age group, the highest of any age group, according to the Survey of Consumer Finance. The percentage drops to 13.3% for people ages 65 to 74 and then falls even further to 8.5% for people ages 75 and older.

22. Cost of Living Matters Most to Retirees

The single biggest factor for baby boomers when picking where to live is the cost of living. According to the Transamerica Center for Retirement Studies, 80% of baby boomers said it was a very important factor. The second-most frequently selected very important factor was close proximity to family and friends.

23. Retirees Might Still Be Paying Mortgages

Over 35% of people ages 65 to 74 are still paying off mortgages, according to the Survey of Consumer Finance. Of respondents ages 75 and older, less than one in four is still paying off a mortgage.

24. Grandchildren Are the Favorites

When it comes to leisure experiences, retirees prefer spending time with grandchildren over children. A Merrill Lynch survey asked respondents whether leisure experiences with their children or grandchildren are more enjoyable, and 60% of respondents picked grandchildren.

25. Access To Continuing Education Isn’t That Important

Retirees might think they’ll spend time going back to school or taking classes, but it doesn’t factor into decisions of where to live much for baby boomers. The Transamerica Center for Retirement Studies reports only 7% of baby boomers said that access to continuing education opportunities was a very important factor in deciding where to live.

26. Retirees Don’t Automatically Consider Themselves 'Old'

When the Center for Retirement Studies asked baby boomers what age they considered someone “old,” 17% said between 70 and 79, and another 15% said between 80 and 89. However, a much larger group, 52%, said it depends on the person.

27. Retirees Aren’t Giving Up Their Keys

Car ownership statistics don’t decline much as people get older. Car ownership peaks at 89.1% for people ages 45 to 54, declines a bit to 86.1% for people ages 55 to 64, but then inched back up to 86.8% for people ages 65 to 74 before falling to 82.2% for people ages 75 and older. Retirees might not be driving their car as much – or at all – but they still own their cars.

28. Retirees Can Still Save With Roth IRAs

Just because you quit your day job doesn’t mean all retirement plans are off-limits to you. As long as you have taxable compensation, including wages from a side job or self-employment income, you can contribute to a traditional IRA until the year you turn 70 1/2 years old.

There’s no limit to how old you can be to contribute to a Roth IRA. There are limits to how much you can contribute, however.

29. Credit Card Debt Goes Down, Eventually

The percentage of people ages 65 to 74 that have credit card debt is 42.1%, which is actually slightly higher than the 41.4% of the 55 to 64 age group. However, just over a quarter of people ages 75 and older have credit card debt.

30. Retirees Value Friendships More Than Ever

Almost 80% of respondents ages 65 and older agreed that staying connected with friends was important, the highest of any age group in the Merrill Lynch survey. The lowest was people ages 35 to 44, with just 58% saying staying connected with friends was important.

31. Retirees Qualify For Additional Tax Breaks as They Age

As you get older, you qualify for additional tax breaks at both the state and federal levels. Seniors have a higher standard deduction, and 37 states don’t impose state income taxes on Social Security benefits. Potentially the weirdest of all: In New Mexico, if you make it to 100, you don’t have to pay state income taxes as long as no one else claims you as their dependent.

27 Ugly Truths About Retirement

Make sure you're not in for a surprise when you retire.

By Alaina Tweddale July 2, 2020 

 

From dealing with unexpected medical costs to supporting adult children, Americans often find themselves facing expenses they weren’t anticipating in their golden years. Plus, it’s harder to save for retirement today than it was 50 years ago.

Over 30% of Americans plan to continue working after they retire, according to a 2019 survey by TD Ameritrade. If you’re not sure how long you’ll need to work or what to expect when you retire, find out the hard truths so you can figure out when you should retire. 

 

1. Some of Your Investment Success Will Be Left to Chance

What happens in the market during the 10 years before and after your retirement date can play a significant role in how well-funded your portfolio is.

“It’s difficult to replace lost money during this period of time, either because of time constraints or the loss of earned income,” said Patrick Daniels, a financial planner at Precedent Asset Management in Indianapolis.

To protect your retirement savings during what Daniels refers to as the high-risk window, he suggested that individuals “take a conservative approach with their investments.”

2. But You Can Still Invest Too Conservatively

Steer clear of high-potential investments like stocks, and you could end up making a mistake in retirement and outspending your lifestyle, said Joseph Carbone, a certified financial planner and founder of Focus Planning Group in Bayport, New York.

“Retirees should be looking to invest in total return-type strategies that focus on stock appreciation — more specifically dividend-producing stocks — and good-quality bonds that don’t have long maturities,” Carbone said. “Many of my clients who are in or approaching retirement have a 60% stock and 40% bond allocation, with an emphasis on dividend-producing stocks and bonds that have a duration of less than six years.”

3. You Might Not Be Saving Enough

About 64% of Americans have less than $10,000 saved for retirement, according to a recent GOBankingRates survey. Even if you plan to spend your golden years living modestly, that dollar amount won’t come close to cutting it. Matt Ritt, a certified financial planner and investment advisor with Questis, suggested that investors “start saving as early as you can.”

He advised investors to take advantage of 401(k), 403b and IRA accounts and maximize contributions whenever possible. To find the funds, “limit your expenses and stick to a reasonable spending plan,” Ritt said.

4. Whether You’re Young…

More than half of millennials have $0 saved in the bank for retirement, according to the GOBankingRates survey.

That’s a shame, too, because the younger you are, the greater your potential to grow your nest egg through the power of compound interest. Start saving just $200 per month at age 25, and you could have $621,735 accrued by age 65, assuming an 8% rate of return.

5. …Or Whether You’re Older

Sadly, baby boomers — the group closest to retirement age — aren’t doing much better.

According to the GOBankingRates retirement survey, 30.7% of people over age 55 have retirement savings below $50,000, which is considered insufficient for those approaching their golden years. Late savers might have to play catch-up with their retirement contributions — or even delay retirement for a few years.

6. You’ll Probably Live Longer Than Your Folks, Which Costs More

The average life expectancy in the U.S. today is 78.6 years, according to the Centers for Disease Control and Prevention. And the ugly truth about retirement is that the longer we live, the more we have to shell out to fund our extended golden years.

“With Americans living longer than ever, it’s no surprise that their biggest concern is outliving their income,” said Jim Poolman, executive director of the Indexed Annuity Leadership Council. “But the good news is, there are solutions for outliving income, such as looking into products that offer guaranteed lifetime income — such as fixed indexed annuities.”

7. You Could Lose Out by Mistiming Your Social Security Benefits

Start taking Social Security payments before your full retirement age and you’ll permanently decrease your monthly payment. Wait until age 70 and you’ll get more money with each check.

Still, that doesn’t mean one strategy is always best, particularly when you factor in spousal and survivor benefits. Fortunately, there are several Social Security optimizers that can help you figure out the best time to start taking Social Security benefits, such as the Quicken Social Security Optimizer.

8. You Might Regret Skipping Your Roth Contribution

The younger you are, the more you can benefit from Roth accounts because they’re funded with after-tax dollars, which accumulate investment earnings tax-free for the life of the investment, Ritt said. That makes them a great option if you expect to have a higher tax rate in retirement than you do now. By tapping your Roth account before your taxable account, you decrease the amount of distributed funds you’ll pay tax on for that year.

9. You’ll Have Numerous Financial Issues To Consider

“Those nearing retirement and those that have just begun retirement face the challenge of planning cash flows for their new lifestyle,” said Scott Smith, a certified financial planner with Olympia Ridge Personal Financial Advisers in Rochester Hills, Michigan.

Before you tap your IRA or brokerage account, Smith suggested creating a five-year cash-flow plan, which should consider the tax repercussions of distributing from your pension, annuity, Social Security, retirement savings and even available part-time income.

“Often, these choices are made without tax efficiency in mind, and the retiree ends up paying more in taxes than they really need to,” Smith said.

10. You’ll Probably Need To Supplement Your Medicare

Many procedures aren’t covered by Medicare, including dental, hearing, vision and long-term care in an assisted-living or nursing facility. Many retirees also face unexpectedly high deductibles and co-pays.

“The best solution is to include unexpected medical costs in your budget as you build your retirement savings,” said Joshua Zimmelman, founder of Westwood Tax & Consulting. You can also enroll “in a Medicare supplemental insurance plan, which will help pay for co-payments, deductibles, co-insurance, prescription drugs and medical care while traveling overseas,” he said.

11. Your Healthcare Will Cost More Than You Expect

The average couple retiring in 2019 at 65 will spend $285,000 on medical costs in retirement, according to a report by Fidelity. And not all those expenses will be covered by Medicare.

“A health savings account, or HSA, can be a huge help when it comes to preparing for those healthcare costs in retirement,” said Jody Dietel, senior vice president, advocacy and government affairs at HealthEquity. When paired with a high-deductible healthcare plan, HSA contributions are made tax-free, the balance accrues tax-free and withdrawals are made tax-free, Dietel said.

“The account can build a healthy nest egg that can save you from having to pull from your 401(k) for those unforeseen healthcare costs,” Dietel said.

12. Most People Will Need Long-Term Care

Around 70% of people over age 65 will need long-term care at some point in their lives, according to the U.S. Department of Health and Human Services. “The cost will vary by state, but three years can easily set you back $300,000,” said Mark Struthers, a certified financial planner at Sona Financial in Chanhassen, Minnesota.

To protect against this likely expense, Struthers suggested that retirees purchase long-term care insurance, which was created to cover long-term costs — like skilled nursing, assisted living and hospice care.

13. Your Overall Health Will Affect Your Retirement Costs

Regular physical exercise and activity can help you manage and prevent chronic disease, which is expensive to treat, according to the CDC. Sample exercises and diet information for retirees and people getting closer to retirement can be found at the National Institute on Aging.

14. Inflation Can Eat Away at Your Nest Egg

Thanks in large part to strategic moves by the Federal Reserve, the U.S. has seen very little inflation for the past 25 years. Still, as anyone who’s lived through a sky-high inflationary environment can attest, 10%-per-year inflation can happen.

Inflation “can be devastating for retirees,” Struthers said. “If we are in retirement for 30 to 40 years, and we have a fixed income stream, its purchasing power can easily be cut by 60 to 70%.”

To combat inflation’s effects, Struthers suggested investing in inflation-sensitive assets like Treasury inflation-protected securities (TIPs), I-Bonds and real estate.

 

15. You Don’t Really Know How Much You’re Spending

You should have a solid understanding of how much money you’re spending — but if you don’t, you’re not alone.

“Over half of the people I talk to who are gearing up for retirement don’t have a good understanding of how much they spend and where it goes,” said Daniel P. Johnson, a certified financial planner and founder at Forward Thinking Wealth Management in Akron, Ohio.

Retirees need to know this information because they’ll use their investments to fill the gap between what’s going out and what’s coming in through their pensions and Social Security plans.

“There is a huge difference if you are anticipating to need an additional $20,000 annually from your investments to fill the gap versus actually needing $50,000,” Johnson said.

16. Your Child Can Borrow For College, But You Can’t Borrow For Retirement

Many parents find themselves stuck between wanting to help their children pay for college and wanting to save for retirement, said Sally Brandon, senior vice president, client service and advice at Rebalance IRA. However, “putting a lot of money into a college fund isn’t going to help if your retirement savings suffer as a result,” she said.

Instead, Brandon suggested setting a budget for what you can afford to pay toward college.

“Tell your child what portion you can afford to pay,” she said. “If you have extra money after putting away what you need for retirement, so much the better.”

17. Your Employer Might Not Help You Prepare

Not all employers offer a 401(k) or similar plan. “While a 401(k) is a great retirement tool when available, there are other options available to you,” Brandon said. For people without an employer-sponsored plan, she recommended setting up an automated payment plan to fund a Roth IRA.

“A Roth IRA helps you save both for emergencies and retirement. Money you put in as a contribution can be taken out tax-free later,” Brandon said. “The account can also act as (an) estate planning tool and is generally more tax-efficient than a traditional IRA.”

18. You Could Overspend on Housing…

A survey by American Financing found that 44% of Americans ages 60 to 70 have a mortgage when they retire, according to the Chicago Tribune. “Some retirees even upsize their homes,” said Cary Carbonaro, a certified financial planner with Goldman Sachs and author of “The Money Queen’s Guide: For Women Who Want to Build Wealth and Banish Fear.”

A hefty mortgage payment can seriously crimp cash flow, particularly for people on a fixed income. “Cutting your costs by downsizing is always a good idea,” Carbonaro said. “Taxes, utilities and maintenance costs almost always go up.”

19. …Or You Could Be House Poor

Then again, paying down your mortgage might not be the best solution if it leaves you without enough of a retirement savings cushion.

“If most of your wealth is tied up in your primary residence going into retirement, it can be tricky to find a good solution that allows you to maintain your desired lifestyle — especially if you want to stay in the home,” said Taylor Schulte, founder and CEO of San Diego-based commission-free financial planning firm Define Financial.

Schulte suggested downsizing and using some of the equity to help fund your retirement. “Many people in this situation have a home that is far too large for their needs anyway,” he said.

20. You Might Have To Move

Depending on where you live, you might consider moving to a place where your retirement money goes further. For many people, especially if they’re worried about retirement, it’s a move that can cut costs substantially. It’s also an opportunity to relocate to a more attractive climate or move closer to grandkids and like-minded transplants.

21. You Might Have To Work Part Time

Some older Americans recognize the physical and mental health benefits that come with keeping an active mind. Others simply can’t afford to retire. Whether you work past age 67 by necessity or choice, one thing is for sure: The added income can help boost your retirement nest egg.

22. Your Adult Children Could Derail Your Retirement Plans...

Cutting off the kids might be a necessary step if you’re looking to retire. In fact, 79% of parents are continuing to support their adult children financially, according to a report from Merrill Lynch and Age Wave.

For many Americans, middle age is also the prime income-earning age and ideally when savers should have the most disposable income available to bolster retirement accounts. Financially funding a loved one during those years can have a serious impact on your retirement savings.

Benjamin Brandt, a certified financial planner and president at Capital City Wealth Management in Bismarck, North Dakota, suggested folding a plan B option into a retirement plan. If you suspect your child might boomerang home, for example, “being proactive rather than reactive will always lead to better retirement outcomes,” he said.

23. …As Could Your Aging Parents

Most adult children are unwilling to withhold support from a parent, so Brandt suggested that workers plan ahead if they anticipate this expense.

“If a client thinks it is likely they will care for a parent, they could build a contingency plan,” he said. They could switch to part-time work earlier than expected, Brandt said, or perhaps even work longer if excess funds are needed more than excess time as a caretaker.

24. Or You Could Be Sandwiched Between Both Generations

A 2019 Nationwide Retirement Institute survey found that 38% of older adults have or have had their adult children live with them, and 16% have or had their parents live with them. Some older adults may end up having to provide financial assistance and care to both generations at the same time.

“This phenomenon is so common that it has a name: the Sandwich Generation,” Brandt said.

By supporting loved ones, many people are sacrificing their own ability to save for retirement. The Nationwide Retirement Institute survey found that 21% of older adults are somewhat or very concerned about financially supporting their adult children and/or parents.

25. You’ll Have To Talk To Your Kids About Your End-of-Life Care Decisions

No one wants to think about their own mortality, but according to information available from the National Institute on Aging, it’s best to discuss end-of-life care preferences long before illness strikes.

Individuals should consider when they want to use life-prolonging measures, where they want to receive care and what they want to happen if they’re physically unable to care for themselves. An ugly truth about retirement is that these are the years when those decisions need to be made, and it’s best to talk to your loved ones — and your doctors — about your wishes.

 

26. You’ll Need To Discuss Your Wealth Transfer Plans

Even for people with a modest inheritance to pass down, it’s often difficult to initiate the money conversation, especially when you’re not sure how your future heirs will react to the news of an impending windfall. Some children feel guilt at the thought of an unearned financial boon and squander the funds. Others can misinterpret your intentions. “Did Dad love my sister more than me?” can be an oft-uttered phrase among children of the deceased.

To avoid misinterpretation, have a sit-down conversation with your future heirs so they understand the rationale behind your decisions and can start preparing emotionally.

27. You’ll Need To Address Your Burial Plan

Many people are not comfortable discussing death, said funeral director Veronica Reyes. Still, avoiding the topic can lead to bigger problems, particularly if you wait until your health is ailing.

“Solidifying your burial or cremation arrangement plans now, with a cool and clear head, allows you to lock in a fixed price,” Reyes said. “Your loved ones will not have to worry about being burdened with confusing decisions and unexpected funeral costs.”.