Staying Confident in Retirement

Staying confident in retirement is an essential aspect of enjoying one’s golden years to the fullest. Retirees in today’s world can expect to live longer than previous generations and enjoy retirement in new ways. Gone are the days when people worked 50 years for the same employer, retired on a predictable pension, and settled down into a quiet lifestyle. Today’s retirees are more active, with baby boomers controlling 70 percent of the country’s disposable income. They’re traveling the world, learning new skills, and redefining what creates a retirement community. With 10,000 boomers retiring daily, this drive to enjoy a vibrant retirement is becoming more common.1,2

In addition, pre-retirees appear to feel less confident about retirement than in years past, with only 64 percent saying in a 2023 EBRI survey that they believe they can retire comfortably. In part, this drop in confidence is due to poor performance by financial markets in 2022 and the uptick in inflation that occurred in the same year.3

While you can’t be certain what the future holds, you can strategize for the retirement life you want—and take these five steps to help you get there with confidence.

Staying Confident in Retirement - Average Monthly Retiree Spending

STEP 1 – Staying Confident in Retirement  > Calculate Your Actual Costs:

The good news is that half of all pre-retirees have tried to calculate how much they will need to live comfortably in retirement. Knowing how much money you need is critical when forming a retirement strategy.

If you don’t identify your actual retirement costs, you risk leaving yourself without the necessary income to cover your expenses. If you find yourself in that gap, you might need to adjust your lifestyle. You can build financial strategies that may help you become more confident by knowing how much your retirement may cost and by identifying many of the expenses you can anticipate. Here are some questions to ask as you create your budget:

How Much Will My Living Costs Be?

Expenses can add up quickly in retirement. On average, households run by people aged 65 years or older spend about $4,345 each month.4

To identify your costs, list out every dollar you spend to support your daily living needs, from your transportation to your food. Pay particular attention to any expenses you may be able to eliminate from your budget.

What Will My Health Care Costs Be?

A retired couple should prepare to spend $315,000 or more to cover health care expenses during their retirement years. A single person should prepare to spend $157,500.5

One choice that can help retirees prepare for health care expenses is to invest in a Health Savings Account (HSA). An HSA isn’t insurance, but it does provide a tax-advantaged savings account to which you, and potentially your employer, can make contributions over time. You can use these funds to pay for most medical expenses, including the costs of prescription drugs, dental care, and vision care.

Keep in mind: Once you start Medicare, you can no longer contribute pretax dollars to your HSA. If you were to withdraw money from your HSA for a non-medical reason, that money would become taxable income, and you would face an additional 20 percent penalty. After age 65, you can take money out without this 20 percent penalty, but it would still become taxable income. HSA contributions are exempt from federal income tax, but they are not exempt from state taxes in certain states.

What Income Will I Have?

Income can come from a variety of sources, such as retirement accounts, pensions, part-time work, and Social Security. One rule of thumb stipulates that retirees may need 80 percent of their pre-retirement income to enjoy a comfortable retirement. However, that number can vary significantly depending on your lifestyle.6

STEP 2 – Staying Confident in Retirement  > Manage Debt:

Some retirees are retiring with debt. Between the ages of 56 and 74, the average debt is $96,984. For households headed by individuals aged 75 years or older, an average of 7.3 percent of their total income goes toward debt payments.7,8

Retirement is often envisioned as a time of relaxation and financial freedom. However, for many, it can also be a period where managing debt becomes a pressing concern. Whether it’s lingering credit card balances, a mortgage, or unexpected medical bills, managing debt during retirement requires a strategic approach to ensure that it doesn’t erode the savings that took a lifetime to accumulate.

Debt can play a role in any financial strategy, but it’s critical to understand its benefits and limitations, especially in retirement.

Prioritize High-Interest Debt: Start by listing all your debts, noting the interest rate for each. High-interest debts, such as credit card balances, should be tackled first. These debts can grow rapidly and can quickly eat into your retirement savings. Consider transferring high-interest balances to a lower-interest credit card or taking out a personal loan with a lower interest rate to consolidate and pay off these debts.
Reevaluate Living Expenses: Retirement is a significant life transition, and it’s an opportune time to reassess your living expenses. Consider downsizing to a smaller home or relocating to an area with a lower cost of living. Reducing monthly expenses can free up additional funds to pay down debt faster. Additionally, think about what luxuries or non-essential expenses can be trimmed, at least temporarily, until your financial situation is more stable.
Avoid New Debt: While it might be tempting to take on new debt, especially with offers of “0% financing” or “no payments for 12 months,” it’s essential to resist. New debt can quickly accumulate and become a burden, especially when you’re on a fixed income. If you must make a significant purchase, plan for it and save in advance.
Seek Professional Advice: If you’re feeling overwhelmed by debt, it might be beneficial to seek the counsel of an Asset Strategy financial advisor. Asset Strategy can provide a fresh perspective, help you develop a debt repayment strategy, and may even be able to negotiate with creditors on your behalf.
Stay Informed and Proactive: It’s crucial to stay informed about your financial situation. Regularly review your accounts, track your spending, and adjust your budget as necessary. Being proactive and addressing financial challenges head-on will give you a better chance of enjoying a debt-free retirement.

 

STEP 3 – Staying Confident in Retirement  > Forecast Income:

Start your retirement strategy by calculating your actual costs and creating a working budget. Put together lists of both the sources of your funds and where you are directing those funds. Without a clear look at your income and where you are directing it, you might lose sight of your budget and find it more challenging to maintain your lifestyle. About 33 percent of workers expect that Social Security benefits will be a major source of income for them during retirement. In reality, 67 percent of retirees say that Social Security is a major source of income in their retirement. The average monthly payout is $1,791.

When strategizing, you should consider designing diverse sources of income to last the rest of your life. Work with a trusted financial professional at Asset Strategy to help you identify your income needs. Only 34 percent of workers take this potentially helpful step. The amount of income required in retirement varies from person to person, since different lifestyle choices, health care expenses, and other personal details may drive one’s budget.9

STEP 4 – Staying Confident in Retirement  > Build Your Savings:

Here’s a retirement reality check: more than one in four retirees are not confident that they have enough saved to live comfortably in retirement. As a rule of thumb, you should expect to save enough for retirement that you can withdraw 80 percent of your pre-retirement income annually. For many, that’s a staggering amount of money. Sources of income may include Social Security payments and a combination of retirement accounts and private savings.10 Many people say that they expect to rely on their employer-provided savings as a vital source of retirement income.

Staying Confident in Retirement - Hypothetical Monthly savings needed 
to achieve $1M at Retirement

STEP 5 – Staying Confident in Retirement  > Continue Working:

While many people think of retirement as a time when they’ll stop working for others, others see continuing to work as part of their overall retirement strategy. Fifty-five percent of workers say that they plan to continue working at least part-time after they retire.11

Whether you are prepared to work or not, here are some benefits that working can bring to your retirement:

  • Augment your income: Whether for extra spending money or to cover daily expenses, continuing to work may help you keep money in your pocket. It may also fill any gaps left by other income sources. Your financial goals may help determine the amount of money you need to keep making from part- or full-time work.
  • Explore new passions: For some people, retirement work means tapping into old or new passions. When you feed these interests, you may also encourage ongoing personal growth in your later years, which may further support your health.
  • Stay social: Maintaining a social network in retirement may help people stay positive and healthy. In fact, 25% of workers who are working or plan to work past the age of 65 do so just to maintain social connections, and 26% of workers say they fear feeling isolated and alone in retirement. Staying active at work may help you beat these blues.

The Takeaway

Creating a strategy for retirement is essential. Only you know what a fulfilling retirement means to you, and today is the perfect time to take steps toward the life you envision. By calculating your costs, getting ahead of your savings, and working with a professional, you may set yourself up to retire comfortably and confidently.

Remember, if you have any financial questions, Asset Strategy can help you navigate the complicated retirement landscape. We believe that retiring is an opportunity to realize your best life, and we’re here to help you make that vision a reality.

Contact us today for a complimentary review of your finances to take the next step in executing a successful retirement strategy.

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  1. BusinessInsider.com, September 19, 2022
  2. SeniorLiving.org, July 27, 2023
  3. EBRI.org, 2023
  4. BLS.gov, 2023
  5. Fidelity.com, 2023
  6. Investopedia.com, March 28, 2023
  7. CNBC.com, May 23, 2023
  8. Employee Benefit Research Institute, 2023.
  9. SSA.gov, July 2023
  10. Investopedia.com, March 28, 2023
  11. TransAmericaInstitute.org, July 2023

 


 

© Asset Strategy Holdings, LLC Group, all rights reserved. 

The information presented here is for informational purposes only, is not to be interpreted as investment, legal, or tax advice, and does not indicate suitability for any particular investor. Please consult the appropriate professional regarding your unique circumstances.
Advisory services are offered through Asset Strategy Advisors, LLC (ASA), an SEC-registered investment adviser. Securities are offered through representatives licensed with Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Insurance is offered through Asset Strategy Financial Group, Inc. (ASFG). ASA and ASFG are independent of CIS.
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