Think through accounts and budgets to alleviate common money concerns in retirement.
Thinking about your 401(k) investments and uncertainties about the future can be enough to make even the best planners feel anxious about retirement. While it's common to have money-related retirement concerns, the good news is that these worries don't have to linger. A few steps in the right direction can help calm your mind and establish a smart financial strategy for retirement.
Sources of retirement anxiety include:
- Running out of money.
- Skyrocketing inflation.
- High health care costs.
- Stock market crashes.
- Children moving back home.
- Taking Social Security at the wrong time.
- No one to take care of finances.
- Too much debt.
Read on to see how these retirement fears can be addressed and overcome.
Running Out of Money
It can be difficult to determine if you are saving enough to cover your long-term needs. To alleviate concerns, "Use a good retirement calculator or work with a financial advisor with good retirement planning software," says Mike Piershale, president of Piershale Financial Group in Barrington, Illinois.
Adequate software can run calculations to show you how much you need to save. It can also help you see how reducing your retirement expenses could help ensure you have enough income. "The projection should include all sources of retirement income, like Social Security, pensions, rental income, portfolio income and even a part-time job if necessary," Piershale says.
If prices rise, retirement dollars can't buy as much. High inflation could mean you need to make lifestyle changes in retirement, like not going out to eat as often or traveling as frequently. "An option to possibly help fight inflation is a Treasury Inflation-Protected Security," says Juan Carlos Cruz, founder of Britewater Financial Group in Brooklyn, New York. A TIPS is a treasury bond that is tied to an inflationary index. The principal of the bond increases with inflation and decreases with deflation. When it matures, you receive the adjusted principal or the original principal, whichever is greater.
High Health Care Costs
Paying for medical treatment in the future may be concerning amid rising health care costs. One way to save toward upcoming medical bills is by opening and funding a health savings account. "These are powerful accounts that carry incredible tax savings and allow all money to cover medical health costs tax-free," Cruz says. However, once you enroll in Medicare at age 65, you will not be able to fund the account anymore.
Stock Market Crashes
If you have the majority of your portfolio invested in stocks, it can be chilling to think of your funds plummeting if the stock market drastically drops. "Start by measuring the risk of your portfolio or find out how much it could potentially drop in a severe market crash," Piershale says. "If the risk is more than you feel comfortable with, you can reduce it by decreasing stock while increasing the amount in bonds and even cash." You can talk to a financial advisor to strike the right balance that makes you feel comfortable and leads to solid returns.
Children Moving Back Home
If adult children come home, the expenses for the household can rise dramatically. "A solution we have seen retirees implement is creating a plan where the children agree to cover all of their own expenses and contribute to a household expense and savings account," Cruz says. "This plan includes paying off student loans and other debt by a certain date. An exit plan and date will also have to be discussed." The arrangement may provide opportunities for you to help children manage their finances and plan for their own retirement.
Taking Social Security at the Wrong Time
There are usually several options regarding when you can start receiving Social Security benefits. "You can take a smaller amount as early as age 62, you can get your full amount at full retirement age, which varies with your birthday, or you can get a maximum amount by waiting until you're 70," Piershale says. There may be other ways to increase your Social Security payments, such as taking a spousal benefit, which can be equal to as much as half of your spouse's or ex-spouse's Social Security benefit. To see how your benefit could change, you can create a my Social Security account or meet with a financial advisor to discuss different scenarios.
No One to Take Care of Finances
After one spouse passes away, the financial responsibilities naturally fall to the other. "In most families, one spouse handles a majority of the money responsibilities," says Brian Beck, president and CFO of WMGNA with offices in Farmington, Connecticut and Boca Raton, Florida. This might include paying the bills, investing, overseeing taxes and updating estate documents. It can be a major concern to think about the spouse who takes care of the finances becoming disabled or dying.
The best action is to prepare before any major events occur. "We like to get both spouses involved as early as possible," Beck says. You can meet together with your financial planner and go over your basic budget. "Have a secure online account aggregation website or app," Beck says. This will allow you to see all your accounts in one place.
Too Much Debt
If you retire with debt, it could lower the amount of income you're able to spend in other areas. "No matter how old you are, you need to have a debt payoff plan," Cruz says. Think through how to get rid of mortgages, car loans or credit card debt before retiring. "A debt repayment plan can help reduce liability and increase income to be used on essential needs in retirement," Cruz says.