Many retirees, however, find that these assumptions are not accurate. In fact, it’s possible that your spending will actually increase after you retire. Fortunately, you can keep your spending under control by understanding some of the unique factors faced by retirees.
It’s a common assumption among many workers, retirees and even financial professionals that spending goes down after you retire. In fact, many retirement plans are built on the assumption that retirement spending will be a fraction of your preretirement income needs.
According to a recent study by Gallup, 64 percent of Americans say they are worried about having enough money for retirement. That makes retirement the country’s number one concern for the 16th consecutive year. In fact, retirement has been the top financial concern for Americans every year since Gallup started conducting the study.1
There’s good reason for Americans to be concerned. With the disappearance of company pensions and the uncertain future of Social Security, it’s clear that the next generation of retirees will carry more of the retirement funding burden than any previous generation. It’s primarily your responsibility to save money for retirement, as you may not be able to count on a pension or a full Social Security benefit as a safety net.
As important as it is to save for retirement, however, there may be times when it may not be wise to make retirement your top financial priority. Many people assume that retirement should always top the list of savings goals. Depending on your circumstances, though, that assumption could be incorrect.
Do you have a health savings account, also known as an HSA? You’re not alone. According to a study from America’s Health Insurance Plans (AHIP), nearly 20 million Americans are enrolled in an HSA.1
An HSA can be a valuable tool to help you pay for deductibles, copays and other out-of-pocket health care costs. They can be especially helpful for those emergency costs that you don’t factor into your regular budget.
If you’re like many Americans, you probably use your HSA to pay for short-term, unexpected costs. Your child suffers a sports injury, so you take money out of the HSA to cover the copay. Or you need to buy medicine for an illness, so you use HSA funds to pay for the prescription. There’s nothing wrong with using an HSA as a short-term reserve account for health care costs. In many ways, that’s why HSAs exist.
Every business owner has to make an exit at some point. Some owners leave on their own terms, either through retirement or with the sale of the company. Others, though, exit before they’re ready via disability, health issues or even death. While it may not be pleasant to think about the latter category of exits, it’s important to consider what may happen to your business and your family if you pass away.
Estate planning can sometimes be a complicated process, but it can be even more complex if you are a business owner. You have to consider how to compensate your family for your years of investment and hard work. You also may have business partners to think about. And you probably want to create a smooth transition for your employees, customers and other interested parties.
Thinking about using a Roth IRA to save for retirement? You’re not alone. The Roth IRA has grown in popularity since its introduction in the 1990s.
Much of the Roth’s popularity is due to its unique tax treatment, which differs greatly from that of a traditional IRA. In a traditional IRA, you may benefit from tax deductions for your upfront contributions. Your funds grow tax-deferred as long as they stay in the account. Your distributions from the traditional IRA are then taxed as ordinary income.
So you’ve decided to purchase life insurance. That could be a wise decision. Life insurance is a powerful financial tool that can provide critical protection for your spouse, children and other loved ones. In the event of your death, your family can use a life insurance death benefit to pay off debt, replace your income and fund major life goals.
Not all life insurance is the same, though. There are many different types of insurance, but most fall into one of two categories: term or permanent. Term insurance is coverage that lasts for a limited period of time, like 10 or 20 years. When the period is over, you can renew the coverage or simply let it lapse. Term insurance is popular because it’s usually affordable compared with similar permanent coverage.
Do you own a traditional IRA but think a Roth may be a better option? You’re not alone. The Roth IRA has become an increasingly popular savings vehicle. That popularity is driven largely by its unique tax treatment, which allows you to take tax-free distributions in retirement and leave a tax-free asset for your loved ones.
Not everyone can contribute to a Roth IRA, however. Roth contributions are governed by income limits. If you’re a high earner, you likely haven’t been able to put money in a Roth. The traditional IRA doesn’t have income limits for contributions. Your traditional IRA contributions may not be deductible if you have high income, but that doesn’t mean you can’t contribute.
Many baby boomers worry about supporting their adult children. However, it may not be their children who need help. It could be their parents. According to a study from A Place for Mom, 28 percent of Americans are either already caring for their elderly parents or will need to at some point in the future. The same study found that 86 percent of Americans are worried they won’t have the financial stability to do so.1
Americans’ life spans are extending longer than ever, but that longevity can bring big challenges. While living longer is generally viewed as a positive development, it can also lead to an increased need for care and support later in life.
Think you’re fully covered for health care costs in retirement? Think again. According to Fidelity, the average retired couple will spend nearly $260,000 on out-of-pocket health care costs.1 Those costs are for things like deductibles, copays, prescription drugs, premiums and much more. It doesn’t include costs for long-term care, which could significantly increase your health care expenses.
Many retirees assume that Medicare will cover all their medical costs. That assumption is often incorrect. While Medicare is a valuable resource, it usually covers only a portion of your expenses. Some types of care may not be covered at all. That means many retirees face sizable bills that they must pay out of pocket.
A health care funding strategy can help you prepare for these costs and prevent them from derailing your retirement. You may want to consider a health savings account (HSA) as one component of your plan.
Behind on your retirement savings? While you may be feeling some stress about your retirement outlook, you certainly aren’t alone. According to Gallup’s 2017 study of financial concerns, more than half of all Americans are worried about their ability to pay for retirement.1
If you’re behind on your savings, the simple solution is to save more money. However, that may not be possible. After all, there’s only so much money you can put away for the future. You still have to cover current bills and expenses.