Ready For Retirement
Ready For Retirement
5 Biggest Retirement Fears and How to Overcome Them
Retirement is an exciting milestone, but it often comes with common fears. With proper planning, these concerns can be addressed to ensure a fulfilling and secure new chapter. Here are five major retirement fears and strategies to overcome them:
Fear of Outliving Savings
- Optimize your Social Security strategy (e.g., delay benefits for higher payouts or collect earlier to reduce portfolio withdrawals).
- Save adequately by identifying your retirement goals and creating a tailored savings plan.
- Conduct a test run of retirement expenses to ensure your projections align with reality.
Fear of Losing Purpose
- Identify valuable aspects of work, such as routine, connection, and productivity, and replace them with meaningful activities.
- Engage in social clubs, volunteering, hobbies, or fitness routines to maintain structure and fulfillment.
Fear of Healthcare Costs
- Educate yourself on Medicare and supplemental policies, and consult with experts for personalized advice.
- Utilize a Health Savings Account (HSA) to save tax-free for medical expenses.
- Understand tax strategies for managing medical costs.
Fear of Loneliness
- Build and maintain relationships through community activities, clubs, or social groups.
- Be intentional about creating a support network and consider location carefully when planning retirement.
Fear of Long-Term Care Expenses
- Explore long-term care insurance options to mitigate potential costs.
- Assess whether your financial assets (e.g., property, pensions, portfolios) can cover care if needed.
By addressing these fears with thoughtful preparation, you can enjoy a secure, purposeful, and fulfilling retirement.
Questions answered:
How can I overcome the fear of outliving my savings in retirement?
What can I do to maintain purpose and connection after retiring?
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Timestamps:
0:00 - Outliving savings
4:45 - Losing purpose
6:59 - The wrong healthcare coverage
10:25 - Feeling lonely
12:39 - Affording long-term care
14:43 - Wrap-up
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It doesn't matter whether you have $50,000 to your name or $50 million. Everyone has fears when it comes to retirement, and although there are countless different fears, generally speaking they build down into one of five different categories. So in today's episode, we're going to talk about what those fears are, as well as what you can do to overcome them as you plan for your own retirement. This is another episode of Ready for Retirement. I'm your host, James Canole, and I'm here to teach you how to get the most out of life with your money. And now on to the episode. The first fear that people have is that they're going to outlive their savings. And again, whether you have $10 or $10 million, this fear is going to be present. It is ingrained in us to not want to lose what we have, and the worst form of losing what we have is losing it when we have no means of recovering it by continuing to work. Now you take that and you add on the fact that you can't control what the markets can do, what inflation is going to do, what different tax legislation is going to do, and all of a sudden it seems incredibly scary thinking about all these things maybe being able to impact your ability to retire and not outlive your money. So what can we do to overcome that fear? Well, there's several things. The first thing is as simple as dialing in the right social security strategy Now. For some people, this means delaying until age 70. Delaying until age 70 locks in the highest benefit and it gives you an income floor that, even if their market doesn't do as well as you want it to do, or even if your portfolio doesn't last as long as you want it to, at least you have that social security income floor. For other people, it actually means collecting social security earlier, either for the current income benefits or because the earlier they collect, the less they're pulling from their portfolio earlier on, which gives them more money to live on down the road. There's no one size fits all solution, but getting your social security right is one of the best things that you can do to ensure that you're not going to run out of money.
Speaker 1:The second thing you can do if you're still working is ensure you're saving the right amount Now, everything that you're saving to your portfolio. Think of it like you're saving to a money-making machine. The bigger that money-making machine, the bigger that portfolio, the more income it can create for you in the future. Now there's a fine line here. You can save too little and be dramatically unprepared for retirement and not have enough income to meet your needs when you get there. Or you can save too much. You say no to too many different things. You sacrifice too many different things. Today you save too much to the point that you save this portfolio amount that's far more than sufficient to meet your needs and you end up passing with more money in your portfolio than you necessarily know what to do with. So don't just save, but save with a plan. Identify what your retirement goals are. How large of a portfolio will you need to make that happen? Work backwards into understanding. What do you need to do today to save the right amount to put you on track to be where you want to be in the future? A third thing you can do is do a test run.
Speaker 1:One of the biggest things that can absolutely ruin your retirement is you go into retirement thinking that your expenses are going to be one thing, but they're actually something entirely different. I remember a client at an old firm that I worked at. He told us what his expenses would be in retirement. He said he would spend no more than $5,000 per month. So we ran projections showing him could he spend $5,000 per month? And the good thing is he could. He could spend $5,000 per month and be just fine for the rest of his life. The bad news was he couldn't spend much more. The bad news is he didn't actually spend $5,000 per month. He retired and when he actually started spending money and doing the things he wanted to do, he came to us about six months after the fact saying, hey guys, I'm actually spending closer to $8,000 per month. Now that was not something his plan could support. So we had to have a really tough conversation to say you know what $5,000 per month works. And look, we ran the projections. You're good. That's not reality. You're spending $8,000 per month and you're actually projected to run out of money before too long because your portfolio can't sustain that. How can you protect against that? Do a test run.
Speaker 1:This doesn't mean actually go retire, but what a lot of people might do is they might take their paycheck and, instead of spending it and putting that in their checking account and do what they do with it, they put that in their portfolio and whatever they're projecting that they might spend in retirement. Let's assume it's $5,000 per month. Here's the example I just used. They'll pull $5,000 per month from their portfolio. So they start giving themselves this income to prove to themselves that is sufficient to meet their needs If they can in fact live on $5,000 per month, and they start doing some of the things that they're going to do in. But if they realize you know what that's not okay, that 5,000 isn't okay, they can adjust their portfolio withdrawal rate to the amount that is gonna be the right amount. And they've done a test run. They've actually seen what it's gonna cost to retire, as opposed to just retiring because of some projection that you went through, but then your actual spending patterns aren't aligning with that projection.
Speaker 1:And then, finally, one of the best things that you can do to protect against the fear of running out of money is having the right withdrawal strategy. There's all kinds of research and science around how much can you sustainably take out of your portfolio while still being relatively well assured that money is going to still be there for you 30, 40 years in the future? So as you're spending, don't just think of it as a dollar amount. Think of it from the standpoint of what is this as a percentage of my portfolio and am I staying within the right guardrails in terms of not spending too much but also not spending too little, such as I'm missing the important things along the way?
Speaker 1:The second fear that people have about retirement is the fear of losing purpose. Now, whether we like work or not, it provides a lot of benefits. It provides identity, it provides routine, it provides connection all things that are really healthy to us as individuals. So, even if we don't like our jobs, we might be trying to escape the job aspect, but we lose sight of the fact that we're also losing the connection, we're losing the routine, we're losing that sense of progress and productivity that we don't realize how important it is until we don't have it anymore. So what can you do to overcome this fear? Well, I would start by understanding what is it about work that you do value? So this might take some introspection, because some of us might just be so eager to get away from work that it's impossible to think of things that we do value.
Speaker 1:But think hard about it. Are there connections that you have that you enjoy? How would you do without the routine and structure that work provides? What about something as simple as feeling productive throughout the day. Are there things about work that you're doing that you want to continue doing the day? Are there things about work that you're doing that you want to continue doing so? When you can look at work in a very honest way and say what value is this providing me, you can start to find how can I replace those things.
Speaker 1:If it's connection great, how can I replace connection? Are there social clubs I can join? Are there intramural leagues for various sports that I can do? What are the things I can do to foster that sense of connection? Or maybe it's productivity that you enjoy Wonderful. How can you replace that? Well, maybe it's projects around the house. Maybe productivity to you can be found through going to the gym, feeling productive, doing something, pushing yourself. Maybe it's volunteering, Volunteering for an organization where you can show up, you can accomplish tasks, you can get that feeling of accomplishment.
Speaker 1:But find out what can you do instead of work to still have that same sense of productivity and purpose. Or maybe it's routine. So this is a big one. What can you do to still have the right routine? It doesn't have to be the routine of going to work. You don't need the same alarm clock. But for people who retire and they just sit around and they lack any purpose or lack any structure. They oftentimes fall into depression. So what is your routine? What's the ideal routine? How do you create a routine that allows you to do the things that you want to do Time with friends, time with family, volunteering, staying active, staying healthy, doing the things that you want to do? Create a routine around that. It doesn't have to be incredibly regimented, but just having some basic structure to your day is going to go a long way.
Speaker 1:The third fear that people have about retirement is that they won't have the right healthcare coverage. And if they don't have the right healthcare coverage, they're worried about what a health event a serious health event specifically might have upon their retirement. So how do you overcome this fear? Well, number one is you educate yourself. You learn the different options for you. So if you're retiring at, say, a traditional age of 65 or later, learn different options for you. So if you're retiring at, say, a traditional age of 65 or later, learn about Medicare. Learn about what Medicare Part A does. What does Part B do? What does Part D do? What does a Medigap policy do? What do all these various options in front of you mean, and how can you select the right option to meet your specific needs?
Speaker 1:Now, this isn't something I recommend just Googling and trying to research on your own. Ideally, you're working with a consultant here, someone that can help you walk through your various options so they can understand your needs, what your specific health factors might be and what coverages are needed to give you the preferred providers, to give you the right doctors, to ensure that things you need are in network and fully covered in your plan. In addition to this, if you're still working, maybe save to a health savings account, an HSA. An HSA is a wonderful way to put money away in a tax-free way, money that can grow tax-free and be spent tax-free if you're using it on qualified medical expenses. So the more money you put into an HSA, the more flexibility you're going to have to pay for premiums, to pay for expenses, to pay for those one-off things that come up that leave us flat-footed if we haven't properly prepared for it.
Speaker 1:And then another thing you can do for healthcare expenses in a way is just understanding how tax law works. So, for example, let's assume you have a $100,000 medical expense because maybe you don't have the right coverage or you're out of network or something catastrophic happened. You have a $100,000 medical bill. Well, people look at that and say, well geez, if I need $100,000 and all my money's in an IRA, maybe I need to pull out $120,000 or $130,000 so that I can pay taxes and then end up with $100,000 to pay for that bill. That's a huge withdrawal from my portfolio, because that's a withdrawal in addition to whatever my living expenses are. Well, not necessarily, and let me share with you why.
Speaker 1:When it comes to healthcare expenses or medical expenses, you can itemize your deductions. You can add any amount that you pay for qualified medical deductions to the extent that it exceeds 7.5% of your adjusted gross income. It's a lot of words. Let's break that down. Let's assume that you have a $100,000 medical expense and let's also assume that your adjusted gross income for the year is $100,000. So $100,000 medical expense, $100,000 adjusted gross income. The way you can determine how much you can deduct is you start by taking 7.5% of your adjusted gross income. So in other words, 7.5% of $100,000. So that's $7,500. Any medical expenses in excess of that you can deduct against. So if you have a $100,000 medical expense, in this example, you could write off $92,500 of that. What does that do? Well, it doesn't make the medical expense go away, but that's a really significant tax deduction. So, to use the previous example of people thinking, wow, if I have a major medical expense, maybe it's a long-term care cost, If I have to pull all that money from my IRA, I'm in serious trouble. Well, maybe, but there's probably not a huge tax bill on top of it. There's probably not a huge tax bill in extreme cases because, assuming it's a qualified medical expense, that's going to allow you in most cases to deduct a pretty significant portion of that on your actual tax return. So that's just an important thing to understand for planning as you're starting to look at different contingencies and what if scenarios, to make sure that you're properly prepared.
Speaker 1:The fourth fear that people have going into retirement is the fear that they'll feel lonely. So many people don't retire and it's not because they don't have the means to do it, but they're just so terrified of what's on the other side. They're terrified of the unknown. Oftentimes they're terrified of being lonely. What am I going to do if I don't have work to justify my existence? What am I going to do if I don't have 40 to 50 hours of my life determined for me each week in terms of the projects I need to be working, the things I need to be taking care of, the deadlines that I need to hit. Loneliness is at the core of many of those fears, and the data backs this up. A recent mass mutual survey shows about one third of retirees at some point report feeling lonely in their retirement. So Diaries at some point report feeling lonely in their retirement.
Speaker 1:So how do we overcome that fear? Well, you overcome that fear by overcoming the things that lead to that fear or that lead to loneliness, which is isolation. So you build your friend group, Are your friends, all friends through work. So that's not necessarily a bad thing. But how do you maintain those relationships? Even when you're not working? How can you build friendships and relationships in your community, in your town, in various clubs or churches or groups that you're a part of? Be intentional about this, because this doesn't happen by accident. Work, you're forced to be around those people. So hopefully, you're forced to be around good people and you can develop really good friendships. But what happens when you're not forced to be around people anymore, when you can just as easily sit inside, when you can just as easily avoid everyone.
Speaker 1:Now some of you are thinking that sounds so wonderful not to have to talk to people ever again. That might be you, but for a lot of people, if they don't have that social interaction, they're going to feel quite lonely. So what can you do to create those friend groups, create those social circles before you actually retire? Another thing you can think about to combat this is where you retire. So many people plan to retire and move out of state, or they plan to retire and go elsewhere. That can be a wonderful thing, but if all of your friendships are where you are, think about how are you going to replace them. How are you going to replace those friendships, those relationships that you've had for 20 years, 30 years, 40 years, when you uproot where you are and move to a different location? And again, there may be a very good reason for that, but just don't take for granted the fact that those relationships take time to develop and if you move, you're going to want to develop those elsewhere. So, getting involved in different leagues and communities and groups and churches and all kinds of different things wonderful ways to maintain that community, but it is something that you need to be intentional about.
Speaker 1:And then, finally, the fifth fear that people have when it comes to retirement is the fear that they won't be able to afford a long-term care event. I can't tell you how many clients I've talked to where I asked them what's concerning them about retirement, what's their greatest fear, and it doesn't matter how much they have in their portfolio Without fail. One of the top fears is will I become a burden to my children, specifically at the end of my life? At the end of my life, I can't afford long-term care. Will my kids have to care for me? Will my family need to be the people I'm dependent upon, and will I become a drain to them? The biggest way that this happens is a major long-term care event.
Speaker 1:How do you protect against that? Well, there's a couple ways. The most obvious way is you go get long-term care insurance. Long-term care insurance if you get the proper policy and these policies can get quite confusing, but if you get the right policy, that policy could help to protect against long-term care events. They're going to have a max total expense that they'll pay for you, the max amount that they'll give you if there were a long-term care event. But that can go a long way into helping to mitigate the cost of a long-term care event. Here's the hard part. The hard part is long-term care insurance policies are very expensive and whatever your premium starts at, it doesn't necessarily stay there. There's been a lot of instances in which long-term care insurance providers end up increasing their premiums as you continue paying in order to maintain the coverage that you have.
Speaker 1:So what's an alternative? Well, an alternative is looking at your overall financial situation. Do you have an income stream or do you have an asset base that could support that long-term care event even if you didn't have insurance? Not saying this is the right thing for everyone to do, but it's certainly something that everyone should explore. Do you have a property that you could sell to fund long-term care if you needed? Do you have a major pension that could cover a lot of your needs if you needed long-term care event? Do you have a portfolio that's of sufficient size that's not projected to be spent down that you could use to cover long-term care costs when those come around?
Speaker 1:So there's not a one-size-fits-all solution, but having a plan for long-term care, either insurance or through looking at your own asset base to find a way to meet those needs. Having that plan ahead of time can go a long way to help you overcome the fear of what a long-term care event might mean for you. So, as you prepare for retirement, know that retirement can be an incredible time of life for you. It can be filled with wonderful things, wonderful people, wonderful activities. But there are also going to be some fears, and these fears are incredibly normal to experience. The question is what are we going to do to overcome them, Whether it's through financial strategies, developing relationships or other things that you can do? Start working towards the things that you can do to overcome these fears so that when you retire, it can be the best experience possible. So that is it for today's episode. I hope that is helpful.
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Speaker 1:Before doing anything, please be sure to consult with your tax planner or financial planner. Nothing in this podcast should be construed as investment, tax, legal or other financial advice. It is for informational purposes only. Thank you for listening to another episode of the Ready for Retirement podcast. If you want to see how Root Financial can help you implement the techniques I discussed in this podcast, then go to rootfinancialpartnerscom and click start here, where you can schedule a call with one of our advisors. We work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help. And please remember nothing we discuss in this podcast is intended to serve as advice. You should always consult a financial, legal or tax professional who's familiar with your unique circumstances before making any financial decisions.
