Retirement is a time for pursuing your passions, reaping the fruits of your labor, and making the most of life. However, there are many financial pressures facing retirees and pre-retirees. What are these pressures, and what tools are available to help create a stress-free retirement?
1. There are fewer retirement benefits than ever before.
Retirement benefits looked different in decades past than they do today. Before the 1980s, employers helped fund their employees’ retirements through pension plans. Today, few companies outside of the public sector offer pensions, and most that do are closing their plans to new employees. Some have even seen their promised pensions reduced or frozen.
Retirement benefits aren’t what they used to be, but there are actions you can take to get the most out of your existing benefits.
- Utilize a 401(k).
Even without a pension, saving for retirement through your employer is possible. Your company may offer a 401(k) account – with traditional or Roth buckets – that you can participate in.
Especially if your company has a matching program (you put money in, and they match what you put in up to a certain percentage of your paycheck), this is a smart option for retirement savings if a pension is unavailable.
- Maximize your Social Security benefit.
For Social Security, having a strategy is essential for maximizing your benefit. Some ways to get the best benefit include:
- Taking inventory of your health history, expected longevity, and lifestyle
- Selecting the optimal retirement age for your situation
- Accounting for other income streams and savings (such as pensions, a 401(k), etc.)
- Understanding the tax implications of your other income streams (and how to reduce them where you can)
- Keep an eye on your pension.
If you were promised a pension, great! However, some people may experience a freeze, where employers will no longer provide pension credit for future years of work.
If this is your situation, talk to your company’s human resources department to help calculate your new payments. Ask if they offer anything to help compensate for the money you weren’t putting away in retirement (for example, a buyout option).
2. Healthcare costs are rising.
Most people have a greater need for healthcare as they age—and it can get expensive quickly. The Centers for Medicare and Medicaid Services state, “Over 2027-32, personal health care price inflation and growth in the use of health care services and goods contribute to projected health spending that grows at a faster rate than the rest of the economy.”
Healthcare needs arise whether we like it or not, but you can prepare yourself.
- Plan based on your stage of life.
As a pre-retiree and retiree, there are four stages to consider when planning for healthcare costs: Pre-Retirement, Post-Retirement (Before Age 65), Post-Retirement (After Age 65), and Long-Term Care.
Our article “How to Plan for Healthcare Costs” covers some considerations for each stage to get you started.
- Open an HSA account.
If you’re on a high-deductible health insurance plan, consider opening a Health Savings Account (HSA). HSAs offer unrivaled tax efficiencies and allow you to contribute pre-tax dollars toward current or future medical expenses.
The money in the account carries over every year—even after you retire. After a certain threshold, you can invest the pre-tax dollars in securities.
- Look into tax deductions.
You may be able to itemize your tax deduction and deduct unreimbursed medical expenses on your tax return. This strategy usually works best for people who require a lot of expensive healthcare services and have unreimbursed medical expenses that exceed the annual AGI limit, which is currently set at 7.5%.
3. You may need to financially support others.
Many people don’t just support themselves during retirement but support others too. Whether you’re helping an adult child, aging parents, a family member in need, or a combination of these, caring for those who rely on you can impact your retirement.
- Have conversations with your loved ones now.
Even if it’s uncomfortable, gathering documentation and developing a plan while your loved ones are still healthy will better prepare you to care for them later.
- Set boundaries when necessary.
When needed, set boundaries with family members who request financial support so you can help them without sacrificing your retirement.
As discussed in our article on “How to Help Your Children Develop a Healthy Relationship with Money,” there is often a difference between a short-term and a long-term need.
Sometimes, when a long-term problem isn’t improving, it’s time to set a stronger boundary. Your financial advisor can be a great support during this time.
With the right plan, you can create a stress-free retirement.
At first glance, these pressures on your retirement may seem overwhelming. But with a comprehensive retirement plan, you can enter this exciting phase of life with the resources you need to thrive and enjoy a stress-free retirement.
To learn how you can create a stress-free retirement, reach out to an advisor using the form below.
Source: “The Biggest Financial Pressures Facing Retirees (and How to Plan for Them).” Bamboo. n.d. Slick_210322_The-Biggest-Financial-Pressures-Facing-Retirees_279789.pdf (emaplan.com)
Contributing Source: U.S. Centers for Medicare & Medicaid Services. (2024, June 12). NHE Fact Sheet. CMS.gov. NHE Fact Sheet | CMS