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7 months ago

3 Surprises That Could Ruin Your Retirement


We’re told to save and prepare for retirement to enjoy our golden years to the fullest. But sometimes, even the best-laid plans can get thrown off course when we least expect it. Here are a few unpleasant surprises that could wreck your retirement, so keep them on your radar as your golden years approach.

1. Cuts to Social Security benefits

The good news about Social Security is that it’s not in danger of disappearing completely. The bad news, however, is that the program is facing a significant funding shortfall that, if left unaddressed, could result in an across-the-board reduction in retirement benefits down the line.

Older man and woman looking at laptop with worried expressions.


As of now, the Social Security Trustees estimate that benefits may be cut as early as 2035 to the tune of 20%. These projections, however, are subject to change, so if you’re nearing retirement, prepare for the possibility that Social Security may not provide as much income as you expect it to, and ramp up your savings efforts accordingly.

In fact, you really shouldn’t depend too heavily on Social Security to begin with because even if benefits aren’t slashed in the future, they’ll still only replace about 40% of your former income if you’re an average earner. Most seniors, meanwhile, need roughly twice that amount to live a reasonably comfortable lifestyle, so work on boosting your IRA or 401(k) balance in the coming years by taking advantage of catch-up contributions, which are available to workers aged 50 and over.

2. Major home repairs

Many seniors manage to pay off their mortgages before entering retirement, thereby eliminating one large expense that would otherwise eat up a chunk of their income. But just because your home is paid off doesn’t mean it won’t cost you money. Quite the contrary — as homes age, the likelihood of them needing substantial repairs increases, so don’t discount the possibility of needing to fix your foundation, replace your roof, or overhaul your heating system at some point during your golden years.

While beefing up your IRA or 401(k) balance will give you the option to take withdrawals as needed to pay for home repairs, another good bet is to go into retirement with a healthy emergency fund. The benefit of having a chunk of cash in the bank, and not just an IRA or 401(k), is that you won’t risk losses on your investments if you need money at a time when the market is down.

3. Long-term care

Whether you kick off your golden years in good health or not, there’s a solid chance you’ll wind up needing some amount of long-term care in your lifetime — 70% of seniors do. The need for such care could last a couple of months, or a couple of years — and the latter scenario could be downright catastrophic if you don’t have a means of paying for it.

In addition to boosting your savings to cover potential long-term care costs, it pays to look into purchasing long-term care insurance. The ideal time to buy a plan is during your 50s, at which point you’re more likely to not only get approved, but snag a reasonable rate on your premiums. But if you’re already in your 60s, don’t hesitate to apply, especially if your health is decent.

You shouldn’t have to spend your golden years living in fear of unwanted financial surprises. Instead, plan accordingly. That way, when the unexpected arises, you’ll be well prepared and much less stressed.

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The Motley Fool has a disclosure policy.


8 months ago

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