If you’re currently in your 20s, 30s, or 40s, retirement may feel decades a way. You may be thinking you have plenty of time to make more money and save for those years later. What you may not realize are all the signs retirement may be more expensive than you think. Trust me, you don’t want to be forced to work when you’re ready to retire.
To avoid such a disappointing way to spend your final years, you should start thinking about how much you’re currently saving for retirement. More importantly, you should make sure you’re saving enough to retire when you want to. Make sure you read the article Are You On Track to Retire, to make sure you are on track with your retirement savings. Now, keep reading to learn 5 signs retirement may be more expensive than you think.
Signs Retirement Will Be More Expensive Than You Think
#1 You underestimate your life expectancy
According to the Social Security Administration, about one in four 65-year-olds today will live past the age of 90. That means if you plan to retire at age 67, you’ll need to ensure you’ll have enough saved to last you more than 20 years.
Think about what you currently need each year to live. Assuming you need about $40,000 a year to live comfortably, and that number won’t change for retirement, you’ll need to have over $800,000 saved before you retire. If you start young, it shouldn’t be too hard for you to reach that number. However, the longer you wait to aggressively save for retirement, the less you will have.
#2 You plan to have your home paid off, but that doesn’t happen
For most people, their home will be their largest purchase. If you are of the rare few who can pay their home in cash, this shouldn’t be an issue for you during retirement. However, if you’re like most other Americans, you’ll likely need to finance your home. The most common loan terms for mortgages are 15 and 30 year. To save money up front, most people go with the 30-year term.
If you aren’t purchasing your home until the age of 40, and go with a 30-year term, your home won’t be paid off until age 70. That means you’ll need to cover your mortgage during retirement. That could be a huge expense when you don’t have a normal salary coming in. When you’re ready to buy a house, make sure you can afford it. You don’t want to put your future self in financial turmoil.
#3 You forget about healthcare costs
Fidelity Investments estimates that a 65-year-old couple retiring in 2019 will need $275,000 to cover medical expenses in retirement. That is a lot of money just to maintain your health, and doesn’t factor in major health issues. While in retirement, healthcare costs will be up to you to fund. There are options available, like Medicare and Medicaid, but those come at a price.
No one knows when something is going to go wrong, in terms of our health, but that doesn’t mean we can’t make the best choices right now. Eat healthy, drink water, get active, and practice a health-conscious lifestyle now. The younger you are, the easier it is to build the habit and make it last.
#4 You aren’t knowledgeable about fees and taxes
Are you currently invested in a ROTH 401k or IRA? If not, or if you don’t know, you’re likely invested in a traditional 401k or IRA. What’s the difference? Read the article Retirement Savings: Roth vs Traditional. In a quick explanation, ROTH means you pay taxes before contributing. Traditional means taxes will be taken out when you take the money out for retirement.
If your tax situation will be different at retirement, paying taxes then may be more expensive than paying the taxes now. It’s important to keep taxes in mind while contributing to retirement. It’s also important to keep fees in mind. Most 401k or IRAs are maintained at a discount through your employer, but once you retire, the fees could get more expensive.
#5 You don’t think about your spending habits in retirement
It’s normal for most people to think retirement will be about relaxing and not spending much money, but how realistic is that? Retirement is the time where you may want to travel, join a community, dine out and socialize. All of that adds up.
Most people don’t become hermits during retirement, so be realistic when thinking about how much you’ll want to have every month and/or year of retirement. Get used to living life on a budget when you have money coming in regularly, that way you’ll know how to budget and manage your money when retirement savings is all you have to live off of.
If you’re struggling to allocate your income properly to save for retirement, schedule a free consultation with me now and let’s work through it together!
None of know what the future holds, but we can do things now to put ourselves in the best position possible. Start saving for retirement right now. Save as much as you can truly afford to for retirement. Your money will grow over the years, so the more you save, the more you will have.
Have you thought about retirement? What do you think life will look like for you during retirement? Share your thoughts or questions about retirement by leaving a comment below!