When thoughts turn to retirement, daydreaming of a life relaxing can quickly turn to panic if you realize you’re not financially – or mentally – prepared.
From life passing you by to financial shortfalls, retirement can be scary for a number of reasons. Some people work longer to delay facing those fears, while others put their head in the sand, try not to think about the reasons retirement scares them and, as a result, don’t plan at all.
Here, CKS Summit Group addresses your top three retirement fears heading into 2021, and how to conquer them.
Outliving your savings is the biggest fear amongst retirees, according to a 2020 SimplyWise study.
Approximately 49% of surveyed workers say they fear outliving their savings, and 44% say they are worried about their ability to pay their daily living expenses in retirement. Both of these things are essentially getting at the same issue, which is not being able to save enough money for retirement.
The first step is to estimate how much money you’ll need, a step that only about half of workers take. In fact, a study by TCRS showed almost half (47 percent) of workers surveyed only “guessed” at the amount of savings they would need for a comfortable retirement, and only 9 percent used a retirement calculator.
If you need help with this task, find a financial planner who’s trained in calculating retirement needs and has your best interests at heart.
Secondly, be prepared to retire later in life, working into your 60s or even early 70s. Working longer reduces the strain on your financial resources and gives your savings a chance to grow before you have to tap them in retirement.
The third step to ensuring you don’t run out of money is to develop a solid retirement strategy, designed specifically to make your retirement savings last. Key action items in this step include delaying Social Security as long as possible to maximize your lifetime payout and deploying your retirement savings to develop a diversified portfolio of retirement income.
The SimplyWise survey showed about 56% of surveyed workers say they are afraid Social Security will dry up, leaving them to fund retirement all on their own. This belief has its origins in Social Security’s dwindling trust funds, which the latest Social Security trustees report projects will run dry in 2034. Some more recent studies suggest the trust funds might be depleted this decade, due to the added strain the COVID-19 pandemic is placing on the program.
However it’s best not to panic. As long as workers and employers pay payroll taxes, Social Security will not run out of money. It’s a pay-as-you-go system: Revenue coming in from FICA (Federal Insurance Contributions Act) and SECA (Self-Employed Contributions Act) taxes largely cover the benefits going out.
While Social Security isn’t going broke, it may need to cut benefits once its trust funds run out of money. As of last year’s projections, seniors are potentially looking at a 20% reduction in benefits once those funds are depleted, assuming Congress doesn’t step in with a fix.
But a potential reduction in benefits isn’t the only reason you shouldn’t bank too heavily on Social Security. The other reason is that those benefits aren’t designed to sustain seniors in the absence of outside income. The average recipient today collects just over $1,500 a month, or $18,000 a year. That’s hardly enough money to buy you a comfortable lifestyle.
If you’re worried about Social Security being worth less in the future, you should prioritize saving for retirement as much as you’re able to right now, and do what you can to increase your income today.
According to Transamerica, the third biggest retirement fear is a set of concerns related to health and healthcare:
- Forty-four percent of workers are worried about declining health that requires long-term care.
- Thirty-eight percent are concerned about lack of access to adequate and affordable healthcare.
- Thirty-five percent fear cognitive decline, dementia, and/or Alzheimer’s disease.
Retirement savers can build healthcare expenses into a plan, but what if a major illness strikes? What if healthcare expenses are far above average?
First, you’ll want to be serious about taking basic steps to improve your health: Obtain proper nutrition, exercise sufficiently, keep your weight at a healthy level, get enough sleep, don’t smoke, don’t abuse alcohol or drugs, and remain socially engaged/active.
Secondly, you need the right health insurance coverage. Medicare covers the basics, but it’s essential to purchase Part B as soon as one is eligible (at age 65) to avoid the 10% late enrollment penalty for every year delayed. To fill in Medicare’s coverage gaps, there are two options: either purchase a Medicare supplement plan and Part D (medication coverage) or enroll in Part C (Medicare Advantage) to cover excess expenses. (Check out our blog dedicated to Insurance Policies once you retire here.)
Nobody said it would be easy to live a long time. But if you put plans in place now to address your fears, you can go enjoy your life knowing you’ve done the best you can to prepare, come what may.
Like any fear, the best thing to do is tackle it head on. It can be emotionally challenging to face what scares you, but it is proven that people feel better once they do.
In today′s world of financial insecurities and changes, the importance of a well-executed retirement plan cannot be underestimated.
At CKS Summit Group, our focus is to bring you fresh new ideas for your retirement income. Our cutting edge tactical portfolios help our clients achieve safe, healthy growth of their savings and preservation of their principal balance.
We design plans which are specifically structured to limit downside stock market risk. This allows us to protect our client’s assets while providing them with strategies for achieving effective tax reduction and inflation protection.
Come experience the new evolution of Retirement Income Planning. Contact us here today to set up your complimentary strategy session.