Money Advice

Don’t let these 4 ‘financial fireworks’ blow up your retirement!

Posted by The Simply Money Advisors Team on Jul 4, 2018 9:04:00 AM

Happy 4th of July! We hope you’ll be spending today enjoying time with family and friends, grilling out in the backyard, watching the red, white, and blue fireworks light up the night sky over the Tri-State.

Ah yes, fireworks.

They can be one of the best parts of Independence Day… but they’re not something you want to run into when planning for retirement! Because there are a lot of surprises that can blow up even the best laid plans.

To help you make sure you're better prepared, here are some “financial fireworks” that Simply Money Advisors wants you to watch out for:

Firework #1: Your expenses stay the same

There’s a common line of thinking that once you hit retirement, your spending automatically goes down. After all, you’re not spending as much on work-related expenses such as gas, clothes and dry cleaning, lunch, and so on.

But in retirement, those types of expenses just get replaced by new expenses (for example, more traveling). So don’t automatically assume you’ll be living on less than what you’re living on now. That mistake can seriously blow up a retirement budget.

Firework #2: Healthcare costs way more than you were expecting

Even though it’s one of top concerns of pre-retirees going into retirement, some people still underestimate the cost of healthcare, specifically prescriptions and long-term care.

Unfortunately, long-term care policies are getting more and more expensive and covering less and less. Working with a trusted financial advisor (such as a CERTIFIED FINANCIAL PLANNER™ or Chartered Financial Consultant®) can help you figure out a plan of action to cover these kinds of expenses.

As for prescriptions, if you’re on Medicare, offers some suggestions for how to lower you coverage gap costs.

Firework #3: You don’t factor in inflation

Basically, inflation eats into your purchasing power. It’s why a car that costs $30,000 today will cost just over $49,000 in 20 years (assuming an annual inflation rate of 2.5%).

It’s also why, 20 years from now, $820,000 in retirement savings will be equal to $500,000 in today’s dollars (also assuming an annual inflation rate of 2.5%). And while Social Security gives cost of living adjustments, many pensions do not.

So, be sure you’re not planning for retirement using today’s numbers – think in “future dollars” instead.

Firework #4: You retire earlier than planned

When you’re 45 or 50, it’s easy to think you’re invincible and can work forever. But life happens. As we like to say on our Simply Money radio show, retirement really just comes down to getting “sick:” you get sick of your job, your boss gets sick of you, you get sick, or someone you love gets sick.

In fact, almost 60% of Americans are forced to retire before they planned, according to Voya’s Retire Ready Index™. So, even if you have the grandest intentions of working into your late-60s or early-70s, you should still have a back-up plan in place so you know you’ll be financially secure in case things don’t quite go according to your original plan.

The Simply Money Point

One of the best ways to see if your retirement plans are in danger of any of these financial fireworks (or others!) is to get a personalized financial plan from a trusted financial advisor. He or she can look at your particular situation and identify possible risks to your money and future.

Want to learn more about how to plan for retirement? Our “Retirement Resources” library includes online video tutorials and downloadable guides, including “7 Simple Steps to Retirement Planning.”

Take me to Retirement Resources

Topics: Retirement Planning


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