There are many things that could go wrong with even a carefully planned retirement. Inflation, running out of money, and future stock market slumps are possibilities that all retirement savers need to prepare for. A recent Society of Actuaries survey of 804 people ages 45 to 80 identified older American’s greatest retirement concerns. Here is how to make sure these common retirement worries don’t become your reality.
Inflation. Inflation is the number one fear of retirees, the survey, conducted by Mathew Greenwald and Associates and the Employee Benefit Research Institute, found. Some 58 percent workers approaching retirement and 71 percent of retirees are concerned that the value of their savings and investments may not keep pace with inflation. Social Security checks and some pension payments are adjusted for inflation. About a third of retirees in the survey delayed collecting Social Security in order to boost the amount of their checks later on in retirement. Other strategies the respondents, who were all born between 1929 and 1964, plan to use to beat inflation include investing some money in stocks or stock mutual funds (64 percent), real estate (43 percent), and annuities or other investment products that guarantee income for life (38 percent).
Running out of money. Once you have accumulated a sizeable nest egg, it’s your job to make sure it lasts the rest of your life – however long that may be. Many Americans approaching retirement are concerned that they might deplete all of their savings too quickly (58 percent). And it’s not just your own lifetime you need to plan for. Many married retirees (43 percent) are also worried about maintaining a spouse’s standard of living after their death. Retirement savers are trying to protect themselves from depleting their nest egg too quickly by paying off debt, ramping up savings, and reducing spending. Many of the survey respondents approaching retirement also plan to pay off their mortgage as soon as possible (80 percent). However, only 48 percent of retirees in the survey have completely paid off their mortgage. Some retirees (6 percent) also tapped their home equity as a last resort to finance retirement.
Stock market slumps. Investment losses can be especially traumatic after retirement. Many retirement savers dial down the risk in their portfolio in the years leading up to and immediately after retirement. Approximately 65 percent of those planning to retire soon and 58 percent of retirees have moved or plan to move their assets into increasingly conservative investments as they get older. It is also important to keep an emergency fund and several years worth of living expenses out of the stock market, so riskier assets have time to weather any market conditions. Many survey respondents also expressed concern that their retirement income will vary based on changes in interest rates.
Health expenses. About half of retirees (49 percent) and two-thirds of workers nearing retirement (67 percent) worry about having enough money to pay for adequate health care. Signing up for Medicare beginning three months before your 65th birthday is a good start. To help pay for some of the services Medicare does not completely cover, most retirees (76 percent) also say they have purchased health insurance to supplement Medicare or participate in an employer-sponsored retiree health plan. Many retirees are also report they are trying to maintain a healthy lifestyle including a proper diet, regular exercise, and preventative care.
Long-term care costs. Almost half of retirees are concerned about having enough money to pay for extended care at home or in a nursing home (46 percent). Older Americans are more likely to try to save for long-term care costs than to purchase insurance. Almost half (47 percent) of retirees say they are either currently saving or intend to save for long-term care expenses or other health costs, while 35 percent have purchased long-term care insurance. Only about 15 percent of retirees have made or intend to make arrangements for care through a continuing care retirement community.
Drawing down assets too quickly. Retirees need to create a plan to spend their nest egg after retirement. Strategies for drawing down retirement assets reported in the survey include setting up regular withdrawals from investment accounts, spending only the interest and dividends earned each month, and using savings only for emergencies or major expenses.
Retiring too young. The majority of retirees surveyed (80 percent) left the workforce before the age of 65 and 28 percent retired before the age of 55. But many of the retirees say they wish they hadn’t retired so young. Half of the retirees report that a three-year delay in retirement would have made their retirement finances more secure. Delaying retirement would have allowed them to get increased payments from Social Security (66 percent), have more time to make contributions and earn money on investments (59 percent), and to qualify for increased monthly pension payments (63 percent). Half of those approaching retirement say they expect to retire at age 65 or later.