5 Things You Should Know Before Retirement

Planning for retirement can prove extremely stressful, as individuals are forced to prediction how much they will need in retirement. Even when individuals save proactively and create a detailed plan for their retirement years, they are bound to run into some surprises. Retirement is designed to be a time of relaxation and exploration rather than a source of constant stress. Research has shown that the majority of people find retirement to be different than what they had expected. Becoming aware of issues that have caught other people off guard is a smart way to prevent them from happening to you. The following are some of the most common aspects that retirees wish they had known prior to retirement.

1. Emergency expenses can wipe out savings.


Some people are shocked by how much emergency expenses can drain their savings. Everything from unexpected home repairs to car trouble can put significant pressure on your retirement income. One study found that less than 20 percent of retirees are adequately prepared to handle the costs of home repairs. Issues like broken furnaces or air conditioning units can cost thousands of dollars to repair and become serious financial problems, particularly for retirees who are still paying off their mortgage. People should look closely at their home in the years leading up to retirement to figure out what issues could arise and how much money would be necessary to fix them. Of course, preparing for all of these emergency expenses is not always possible, so it pays to have a significant emergency fund already created upon retirement. Ideally, it should be several times larger than the one that they maintained while still working.

2. Medicare does not cover long-term care.

Another aspect that some people may not understand are the limitations of Medicare. This plan has a number of holes that people should be aware of, including long-term care. Someone who has just turned 65 has a 70 percent chance of requiring long-term care at some point. Unfortunately, this type of care can cost a significant amount of money. Retirees can quickly go bankrupt when they require this type of care. One way to prepare for long-term care costs is through insurance. Although many young and healthy people do not think about purchasing long-term care insurance, the premiums are considerably cheaper when they are further away from retirement. Also, a tax break exists for purchasing this type of coverage. At the same time, the premiums can be quite costly, so it is important to factor this expense into savings and ensure that the overall health coverage is adequate.

3. Inflation can severely cut into your retirement income.

Many people who retire do not understand how significantly inflation can impact their overall income. Retirement planning needs to take inflation into account to ensure that people continue to have the money they need to live decades down the line. In retirement, inflation can disproportionately affect expenses, such as Medicare premiums, out-of-pocket health care costs, and long-term care costs. Overall, the cost-of-living increase for Social Security benefits has not kept pace with the increase in average cost in these categories, which means that people may need to rely more heavily on their investments over time. Even without the excess price growth in these categories, inflation can cause prices to double approximately every 20 years, which means that a retiree’s expenses will look very different at 85 than they did at 65.

4. Dividend income is not always stable or even safe.


Historically, retirees have frequently relied heavily on bond interest payments and stock dividends to finance their lifestyle in retirement. However, this strategy is not without risks, as a reduction in share prices can cause payments to decrease or companies to simply choose to cut dividends. Unfortunately, retirees may be surprised by the loss of dividends and find themselves in a difficult place if they do not have an alternate plan. In recent years, many of the most significant stock dividends have decreased precipitously, which makes this strategy less appealing for people who are nearing retirement. In truth, stocks that pay dividends can provide a great source of retirement income, although they must be balanced with other types of investments so that individuals are not seriously affected when their income decreases.

5. Working longer is not always possible.

Surveys have found that people who are currently working plan to retire at a much older age than has been the historical average. This finding may be related to the fact that people in general need more time to save in order to meet their retirement goals. While working longer is an admirable goal that can prove very beneficial for a number of different reasons, it is not always something that people can count on being able to do. Some people get laid off from jobs that they have had for decades and find it difficult to find a new one, while others may have health problems that preclude them from working. Even an apparently voluntary retirement can be the result of getting pushed out of the company through an early retirement package or a change in the workplace culture. People in this position can find jobs that are part-time and that often pay less in order to help bridge the gap to full-time retirement, although this itself can prove difficult and stressful.

Published by Robert Ryerson

A financial professional with more than three decades of experience, Robert Ryerson works closely with clients in the Freehold, New Jersey, area to meet their financial planning needs. As a Certified Financial Planner (CFP) at New Century Planning, he focuses on retirement income planning, as well as estate administration, regularly assisting his clients with legacy and estate planning. He also advises them on health and disability insurance, including Medicare, Medicaid, and Medicare Supplement Plans. Mr. Ryerson’s many years helping his clients navigate the complexities of retirement planning gave him a deeper understanding of the healthcare costs that retirees face. In 2013, he drew upon this knowledge to co-author the book What You Don’t Know About Retirement Will Hurt You. Outside of his work at New Century Planning, Robert M. Ryerson is a regular fixture at workshops and seminars on retirement. He has delivered several keynote speeches on the often-confusing topic of required minimum distributions. Mr. Ryerson continues to share his financial expertise as a facilitator of online courses for Certified Public Accountants through The Society for Financial Awareness. In the early 2010s, Mr. Ryerson became concerned about the threat of identity theft after noting the many cybersecurity breaches suffered by major companies. He became a Certified Identity Theft Risk Management Specialist (CITRMS) in 2014. He has since taught identity theft recovery courses at local community colleges. Mr. Ryerson also wrote a book on the topic entitled What’s the Deal with Identity Theft: A Plain English Look at Our Fastest Growing Crime. A graduate of Rutgers University with a degree in economics, Mr. Ryerson began his career in the financial services industry as a stockbroker. He obtained his CFP designation in 1991 and began working as an independent financial planner a few years later. In addition, he is a notary public.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: