Undoubtedly, no one of you will want to go broke in retirement. Regardless of all of your planning and preparation, you might find out that your retirement is going to cost you more than what you thought. First and foremost, you need to have a clear understanding of the reasons that the budget you have in mind could be smaller than it needs to be. In case you are worried about whether you are having enough amount of money or not, have a look at the following signs that may indicate that you are not saving enough for retirement.
You Don’t Have a Long-Term Care Plan
According to the Department of Health and Human Services, you could end up having no enough money in retirement in case you need long-term care but didn’t have a plan to pay for it. In fact, more than half of adults turning 65 today will need long-term care and around 1 in 7 will need care for more than five years.
In addition, you will need to spend lots of money in case you receive care in an assisted living facility or nursing home. For example, according to the Genworth Cost of Care Survey, the average annual cost of care in an assisted living facility was $48,612 in 2019. And the annual cost of a private room in a nursing home is over $102,000.
Dave Littell, professor emeritus of taxation at The American College said, “Even the richest people are at risk if they have a lot of long-term care expenses.”
What To Do
Littell said, you can make use of numerous strategies in order to be financially prepared for long-term care, which includes getting a long-term-care insurance policy, hybrid life insurance policy, or a longevity annuity that will pay out if you have a long-term-care event.
According to Littell, this is an insurance product that requires a lump-sum investment and will provide a steady stream of retirement income. But, you have to wait for many years or until a particular age to start receiving your payout. Consequently, you can’t time it exactly with a long-term care need. Ideally, you should consult a financial planner who is specialized in long-term care planning to help you make a well-planned strategy.
You Underestimated Your Life Expectancy
In case you are intended to live a little longer than you expected you would, your retirement could be more expensive than you thought. According to the Social Security Administration, around 1 in 4 people with the age of 65 years old today will live up to age 90.
In case you have saved enough to cover expenses for 20 years in retirement but you end up living for 30 years in retirement, you will need to find a way to increase your savings for the additional10 years.
What To Do
Littell advised using the life expectancy calculator at Livingto100.com to get approximately the period of years you will live based on your health and family history. However, to reduce the risk of outliving your savings, you should not depend on just one source of income in retirement.
in addition, you should be having a portfolio of diversified investments in a retirement account from which you can retreat money over time. Additionally, you should adopt a balanced approach by having a source of lifetime income such as an annuity in case you will not have a pension, Littell advised. Limit withdrawals to nearly 4% annually to make sure that your saving lasts long enough.
You Didn’t Plan for High Healthcare Costs
Although you may be aware of the fact that you will need to pay for healthcare in retirement, you might not know how high that expense will be.
According to Brandon Hayes, a certified financial planner with oXYGen Financial in Atlanta, “When I tell clients in their 40s that the costs of basic healthcare in retirement are currently more than $250,000, they were really shocked.” In fact, retirees can expect to spend even more than that. Fidelity Investments estimates that a 65-year-old couple retiring in 2019 would need around $285,000 to cover their medical expenses in retirement.
What To Do
When calculating the amount of money you need to save for retirement, do not forget to include healthcare costs, which could be significantly higher than what you are paying now. Moreover, don’t forget to consider small items like prescription co-pays for those who have diabetes and other health issues that necessitate years of medication, which surely won’t end in retirement, Hayes said.
Besides, when you are in retirement, make a clear comparison of the different Medicare options to be sure of getting the right plan for your requirements. Spending more on the premium for a comprehensive Medicare Advantage plan or supplemental Medicare plans to get better coverage and reduce the costs can be worth doing, Littell said.
You Didn’t Take Inflation into Consideration
When you’re working, you might not feel the influence of inflation if your earnings are rising along with prices. Therefore, you might forget to consider inflation in your retirement savings calculations.
According to Michael Hardy, a certified financial planner and vice president at Mollot & Hardy in Amherst, New York, “On average in the USA, we see that the prices of goods and services rise by 3% per year, this means that over a 20-year time period, your $100,000 of retirement savings will likely be worth in terms of buying power 60% less.”
What To Do
Hardy said, in case you did not take into consideration the inflation into your retirement calculations, you might need to save more than previously projected. Besides, consider delaying social security benefits, as waiting to claim it until the age of 70 years old, will help you to maximize the benefits. As a result, not only will your monthly check be bigger, but also the Social Security Administration’s cost-of-living adjustment, which helps benefits keep up with inflation, and be applied to that bigger payout.