Retirement Realities: Disconnects & Vulnerabilities

According to the Transamerica Center for Retirement Studies (TCRS) report six months ago, just 16% of retirees feel they have built a large enough retirement nest egg. For the not-yet-retired workers age 50 years and above, only 15% feel they are building a large enough retirement nest egg.

The top three greatest fears of workers age 50+ and those currently retired are that they will develop declining health that will require long-term care, that Social Security will cease to exist and that they will outlive their retirement savings. This last fear is perhaps well founded. According to the TCRS study results, the single greatest financial priority among retirees and age 50+ workers is “just getting by – covering their basic living expenses.” I tend to think most of them had dreams or expectations of a different retirement lifestyle.

Debt is a tremendous risk to your retirement financial security. Sure, you need to invest wisely and sock money into your retirement savings, but you also need to zero out your debt before you retire. An alarming 25% of retirees are still paying off credit card debt. The ones with the credit card debt tend to be the ones with insufficient retirement savings.

For those of you age 50 years and above, the TCRS report includes key recommendations that go beyond avoiding the doom of debt.

1. Start talking about retirement with loved ones. Have candid conversations about your retirement dreams, fears and financial situation to help create a common understanding.
2. Reduce or pay off debt. Avoid retiring with any debt, but particularly high interest rate credit card debt. It is hard enough to pay off a mortgage and credit card debt when you have a regular employment income. It is backbreaking when you try to do it on a limited retirement income.
3. Find ways to cut expenses. Be hyper-vigilant about sticking to a budget. Even consider renting a bedroom in your house.
4. Keep saving and save even more for your retirement. If you are age 50+ and you suspect that you might not have saved enough for retirement, get a grip and ramp up your savings. Spend less than you earn and sock away more savings than ever before. Learn about tax incentives like Saver’s Credit and Catch-Up Contributions to know if they can work for you.
5. Figure out your retirement income needs, get a budget and write it down. Make a complete list of your expenses in retirement. Include living expenses, estimate healthcare expenses (then round up, way up), government benefits, insurance and costs for possible long-term-care. (Medicare does not cover long-term-care.)
6. Learn about Social Security. While you can live on just your Social Security check, your lifestyle may not be what you would prefer. If you can keep working, wait until age 70 to start getting the maximum benefits. (My column last month mentioned a way to hoist these benefits up further. You can read it on my website.)
7. Consider an encore career. While 54% of workers age 50+ say they will continue to work in retirement, the TCRS report shows that a mere 5% of retirees are currently working. Seriously consider being one of the 5%. Working in retirement brings more income and ways to stay active. Another recent study even shows that delaying retirement by a year will increase your life by quality years.
8. Seek advice from a professional financial advisor. Please don’t rely on amateurs or rules of thumb. Your golden years are more important than that.
9. Plan for a long retirement. People routinely tell me that they will not live past the age of their parents or grandparents. Well, folks, modern medicine has been improving. You have access to better healthcare options and you know more about healthy living than did your parents and grandparents. You will probably live longer than you think. That includes the possibility of more years with cognitive decline and the need for caregivers. Factor that in your plans and retiree budget.

Looking at their lives and reflecting on the past, 76% of retirees wish they had saved more; 68% wish they had been more knowledgeable about retirement saving and investing; 41% waiting too long to concern themselves with saving and investing for their future; and 41% agree they should have relied more on professional financial advisors to monitor and manage their retirement savings.

While only 16% of retirees feel they have saved enough for a financially secure retirement, 90% of retirees say they are happy. Do they need less to be happy or are they in deep denial?