Facing the Realities of Retirement | True Cost of Retirement

The media tends to give false idealizations of life in retirement. Several media outlets project that pre-retirees will spend less money once they reach retirement, but in reality, most people spend more. If someone is spending less it’s likely because they didn’t do the proper retirement planning to meet their goals and their money falls short forcing them to decrease their spending. Here are 5 new realities of retirement you will need to think about.

You Will Need More Money

Retirement can be expensive. Every day is a Saturday. People have more time on their hands which leads to a higher cost of living. With more free time, people like to travel and see places they never had a chance to when they were working full-time.

Then there are grandchildren…

Grandparents love to spoil their grandchildren. That’s not even mentioning health care. If you’re not factoring in healthcare in your retirement savings plan, you’re going to be shocked at how fast it can deplete your assets.

According to Fidelity Investments, the average 65-year-old couple will spend about $400,000 out-of-pocket throughout retirement until age 92, not including long-term-care costs¹, rising insurance premiums and the reality that people are living longer while their bodies are weakening and their need for medical attention grows exponentially. The view of retirement needs to evolve with how the world is evolving.

Social Security Benefits

As life expectancy lengthens, people should also reevaluate their Social Security benefit options. There are hundreds of different combinations to claim Social Security. Most people claim their benefit too early missing out on hundreds of thousands of dollars. If you delay Social Security, in most cases you will receive an 8% increase in benefit per year from age 62 – 70.²

It’s ideal to delay your benefit as long as you can.

This is especially true if still working. Those who claim their Social Security benefit prior to full retirement age may receive a penalty when income from other sources exceeds a modest threshold. This can make waiting until at or after full retirement age even more attractive for all who can afford to do so.

Read about Social Security Strategies when Forced into Early Retirement

Your Life Expectancy is Longer

People are living longer than ever. Advances in medical technology and other scientific developments may ensure that this trend continues. The good news is you have an even longer life to enjoy. The bad news is that you will also need to plan for the cost of living even longer in retirement. You might just be healthier for a longer portion of your retirement as well, which can increase the length of time you have the option to work.

You Spend More Than You Think

As you approach retirement, it becomes more and more important to budget your spending and get an accurate measure of your cost of living on a year-to-year basis. People always underestimate their spending which leads to unfortunate surprises during retirement. To avoid these shocking moments, I recommend giving yourself a little taste of reality before you completely finish working by doing an exercise to prepare yourself for the true cost of retirement.

How To Adjust Your Lifestyle

Spend less, save more, work longer, stay healthy, stretch your money.

There are many ways to adjust your lifestyle in retirement. Spending less is a possibility. While some of your expenses may naturally be reduced (your mortgage is now paid off, for example), others might require a little work, such as reducing unnecessary expenses.

Since you are no longer required to go to your physical workplace, it may be easier to avoid eating out for lunch every workday, for example.

You can also potentially work longer. Many retirees are continuing to work part-time or consult. Sometimes this is a monetary decision, but oftentimes, many people also find that they enjoy the stimulation that can come from continuing to work. You may just find that you enjoyed your job more than you thought once you no longer need it for income.

Finding ways to stretch money is another option. Buying in bulk, shopping for certain items offseason and fully researching costs before buying are just a few ways to make sure you’re getting the most for every dollar you do spend.

If possible, practice retirement for a month or two before you actually retire. If you believe you can reduce your spending or lifestyle, try to spend what you think you will spend in retirement. Most people find that they run out of money before they run out of days in the month. This is why it’s crucial to do the proper cash flow planning accounting for various scenarios of your life in retirement. This will eliminate many financial mishaps paving way for you to live the retirement of your dreams.

2 – Social Security Administration. https://www.ssa.gov/policy/docs/ssb/v74n4/v74n4p21.html