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The 4 Biggest Financial Fears About Retirement and How to Overcome Them

There’s no secret that it can take decades to plan for retirement, and during your retirement years, you want to be able to enjoy your hard-earned savings.

That said, that time leading up to this new phase in life, it’s common for retirees to have concerns, such as: Will my savings last? Will I be able to collect Social Security benefits? How much can I expect to spend on healthcare? Will I need long-term care?

If you have these fears, you aren’t alone; in fact, these are all questions on the minds of many retirees. While we never know what the future holds, that doesn’t mean you have to be uncertain about your retirement. The best way to overcome these worries is to address them head-on by being proactive and plan ahead.

The good news is, you don’t have to address your fear and anxiety alone. An experienced financial advisor can help you answer these questions confidently and overcome some of the most common financial concerns about retirement. In today’s article, we are tackling these fears and offering our tips for the best tactics to avoid additional stress pre-retirement.

Fear #1: Running out of money.

Retirees fear outliving their money in retirement — even more than dying. Nearly half of Americans say running out of money in their post-career years is a top concern. The fact that we’re living longer than ever, combined with rising healthcare costs, inflation, etc. justifies this fear. This justification is especially true when you consider that most retirees will likely outlive their savings by around eight to 10 years, assuming they’ll live to age 85.

Our Recommendation:

Start with a sound financial plan that reflects your retirement goals. We can help you develop a dynamic financial plan that changes as your needs change and help assure that you’re on track to achieve retirement security. Our seasoned retirement advisors will help you create a spending plan, prioritize your needs and wants, develop an income strategy, and plan for Social Security, market ups and downs, inflation, healthcare costs, long-term care insurance, and taxes.

Fear #2: An unexpected health event.

As we age, it’s common to experience an increase in health concerns. As such, it’s normal for retirees to worry that an unexpected health crisis could wipe out their savings. In addition, nearly 7 out of 10 people will likely need some type of long-term care services in their lifetime — a costly proposition. Nonetheless, preparing for such events can help give you some peace of mind.

Our Recommendation:

We recommend that those who aren’t yet retired contribute the maximum they can to their workplace retirement plan, such as a 401(k) — at least enough to get the employer match, if offered. Doing so will help you build a substantial savings foundation to help defray your healthcare costs in retirement.

Also, consider contributing to a health savings account (HSA). Contributing to an HSA today can help provide an additional savings bucket from which to pay for healthcare expenses in retirement. Plus it’s a smart way to reduce your current taxes.

An often-overlooked benefit, HSAs provide a “triple-tax” advantage: 

  1. Contributions are made on a pre-tax basis, thus reducing your current tax bill.  
  2. Investment earnings grow tax-deferred.
  3. You can withdraw the money tax-free as long as it is used for qualified healthcare expenses. 

If you’re in your 50s, you might also consider options for long-term care coverage, which can help cover your costs if you need nursing home or in-home care, for example. Long-term care services aren’t covered by traditional health insurance, and Medicare only covers it on a limited basis. Besides, as with Medicaid, you must deplete all of your assets to qualify. While long-term care insurance premiums can be costly, and the coverages have become less comprehensive in recent years, there are options for coverage available. The average annual cost of a private room in a nursing home is $100,000, and an in-home health aide or a stay in an assisted living facility costs around $50,000 per year, on average. A financial advisor can help you sort through options and decide what type of coverage, if any, would best meet your anticipated needs.

Keep in mind, too, that Medicare premiums are paid from your Social Security benefits, and the amount you pay is based on your income. Prescription costs are another consideration — they may not be included in your Medicare or supplemental insurance coverage.

So yes, it’s essential to prepare in advance for unforeseen health events you may face in retirement. However, we can help you obtain the insurance coverage that’s appropriate for your situation and assist you in structuring your savings accordingly to pay for your healthcare needs.

Fear #3: Inflation.

Inflation is a risk for retirees because it erodes purchasing power as prices rise over time. To put that statement in another way, a dollar today is worth more than a dollar tomorrow. Consider a gallon of milk: In 1995, it cost $2.50; it 2005, the cost of milk soared to $3.20 per gallon! Keeping up with inflation is an important part of retirement planning.

Our Recommendation:

We use sophisticated software to account for inflation when developing income and spending strategies for our clients. Typically, we project 2.25-2.5% inflation per year on most things; it’s a bit higher for healthcare and prescription costs because statistically, those tend to rise faster.

In addition, we structure our clients’ investment strategies to include a portfolio of diversified assets that historically have outpaced inflation. Investing in products that provide cost-of-living adjustments, such as some annuities, may also help to offset inflation’s impacts. Of course, past performance is no guarantee of future results. But these strategies can help address the risk of running out of money in retirement and allow your portfolio to remain fully invested in long-term growth assets that have the potential to outpace inflation.

Fear #4: Being forced into early retirement. 

Most people plan to work well into their 60s and 70s because they love their job and the sense of purpose it gives them, or because they believe they haven’t saved enough to retire. However, growing numbers of Americans are leaving the workforce involuntarily due to health issues, caring for a loved one or job loss.

Our Recommendation:

If you are retiring sooner than expected, it could have an adverse impact on your Social Security benefits, as well as any pension payouts or matching contributions you might have received from your employer.

Thus, it’s best to create a strategy to take withdrawals from your retirement savings as efficiently as possible to prevent outliving your assets. Also, consider that your current salary at your current job may not be the only answer. You may be able to work remotely, reduce your hours or negotiate another flexible work arrangement with your current employer, or get hired to do a similar job at another company.

A financial professional can help you explore your options and develop a plan that can be altered as needed to help you determine how to achieve your goals despite unforeseen events and circumstances. Having a thoughtful, well-structured financial plan in place can help mitigate the common fears most people experience when they think about their finances and retirement.

These four fears have a common theme — fear of the unknown. At Alpha Wealth Advisors, we believe retirement doesn’t have to be complicated or scary. You’ve worked hard to earn and save your money for years — retirement is a time to enjoy it. We can help you create a sound strategy to live your best life in retirement, without fear.

Give us a call to schedule an appointment, where we’ll talk through your worries and provide personalized guidance to help you overcome them.