12 Nasty Surprises That Could Ruin Your Retirement

Be prepared for these expected and unexpected surprises that can throw a wrench in your retirement plans.

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Updated June 6, 2024
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You‘re trying to be responsible while planning for your retirement, so you avoid throwing away money and save whenever you can.

But the next step toward laying the best foundation for your future is preparing for the various surprises retirement can throw at you.

You've stopped wasting your retirement savings, and you may have already budgeted for future expenses. Unfortunately, there could still be surprises lurking that can totally spoil your plans. Here's what to watch out for.

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Less Social Security than you expected

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You may need to double-check your Social Security benefits and how much the government estimates you will receive when you retire.

Your Social Security is, in part, determined by how much you made while working. Remember that when you start receiving your benefits also affects your monthly payouts. 

Social Security should supplement your monthly retirement costs, not cover all of them, so save accordingly. If you find that you’ll be short, look for creative ways to supplement your Social Security.

Losing money with high-risk investments

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Taking extra risks with your investments may be okay when you’re younger.

Maybe you wanted to buy a stock that has been volatile in the past, or perhaps you want to focus on a new industry with potential. You could also have stock issued to you by your company that you want to hold on to.

But as you near retirement, you may want to rebalance your portfolio with lower-risk investments. Think about switching to different stocks and diversifying your portfolio to help you weather market changes.

Lower stock market returns

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More than half of American families have either direct or indirect investments in the stock market, and that number rises as adults get older.

Unfortunately, when the stock market drops — particularly during recessions — you could see a drop in your returns as well.

Your investments could take months and possibly years to bounce back after a significant drop. Review your strategy for investing money in stocks to ensure you can weather the market downfall without too much loss or hold on and wait for the market to recover.

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Less money to pay off debt

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You may have a good nest egg if you’ve been saving for retirement, but remember that your debt won’t retire when you do. 

Factor in any loans you still may have to pay off, such as a home mortgage or car loan, and take into account the length of those loans. A 30-year mortgage could be part of your retired life for decades.

Also, consider any credit card bills you may need to pay off and how much you can comfortably put on your credit cards each month.

Not enough in your emergency fund

H_Ko/Adobe depositing some extra money in future needs

Your calculations for retirement should be based on how much you expect to need each month to cover your bills and other daily living costs. But you also need to consider big-ticket items that crop up from time to time.

It’s easier to set aside money for emergencies while you’re employed, but it’s harder once you retire. Unfortunately, unexpected expenses like home and car repairs will still crop up when you least expect them.

Be sure to have enough in your emergency fund so you won’t have to dip into your retirement savings.

You invested too little

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There’s no problem with wanting the best for your children. Maybe you’ve helped them pay for college or living expenses after they graduate or helped them get out of debt.

However, you mustn’t give so much that you have nothing left to put toward retirement. Not only could that delay your retirement, but it could also burden your children, who may have to help care for you in your later years.

Fortunately, you can save for retirement at any age.

Medicare is not enough

Lisa F. Young/Adobe senior couple reading medical bills

Medicare is a good program to help you cover medical expenses as you age, but it may not cover as much as you think. Basic Medicare doesn‘t cover most dental or vision care, for instance.

Do your research on supplemental insurance so you won’t be surprised by medical bills after you retire. You also may want to consider long-term medical insurance to cover the costs of assisted living and nursing home care.

No retirement “fun money”

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One of the perks of retiring is not having to get up and go to work every day. But the day-to-day of staying at home can get old fast.

When thinking about your financial retirement future, you should also consider your personal retirement future.

If you want to travel more, you may have to set aside additional savings to pay for your big adventures. New hobbies might require funding for equipment or the ability to go places and share your hobby with others.

You may also want to start looking at volunteer opportunities or contributing to your community now to lay the groundwork for your days as a retiree.

Inflation

Andrey Popov/Adobe line and coin graphs on desk

Inflation is something that Americans are familiar with, affecting items like cars, gas, and food. Unfortunately, you must continue to fight inflation when you retire.

When calculating your future expenses, remember that you may be living for another 20 (or more!) years after you retire.

The cost of living is likely to keep going up, so it’s essential to factor in a little wiggle room when you think about how much you’ll need to live off in the future.

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Higher taxes than expected

insta_photos/Adobe senior lady sitting at table with laptop calculator and cup reviewing taxes at home

Unfortunately, you might not be done with income taxes in retirement. In most states, distributions from traditional retirement accounts and 401(k)s are taxed.

That said, there are ways to reduce this blow. The following states don‘t tax retirement distributions:

  • Alaska
  • Florida
  • Illinois
  • Iowa
  • Mississippi
  • New Hampshire (though it taxes interests and dividends)
  • Nevada
  • Pennsylvania
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

If you have a Roth IRA or a designated Roth account, you likely won‘t be taxed on your distributions — no matter where you are. Any funds taken after age 59.5 on accounts established at least five years prior are nontaxable.

In addition, more than 20 states don‘t tax military pensions. When making your retirement budget, it is crucial to factor in the taxes you will (or won‘t) face on your income.

Not being fully vested in your 401(k)s

Mary Perry/Adobe 401(k) Plans

Hopefully you‘ve been able to contribute to a 401(k) account through your employers over the years.

These accounts allow your funds to (hopefully) grow, and employers often match a certain percentage of your contributions.

Before you voluntarily leave any job, make sure you are 100% vested in your 401(k) account. That means you own all of the funds — including your employer‘s contributions. Leaving before you‘re fully vested could mean forfeiting those extra funds.

Following the wrong financial strategy

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You’ve been putting money into your 401(k) for decades and think you have your investment portfolio figured out. But now might be a good time to hire a financial advisor specializing in helping you get the most out of your retirement.

Be prepared with questions to ask your financial advisor, such as what kinds of investments are suitable for retirees. 

You also may want to clarify your goals about how many more years you plan to work. This can give your advisor a better idea of how to tailor your portfolio to your future goals.

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Bottom line

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The good news is that you can start working on your retirement portfolio now and plan for these surprises so they won’t jump out at you once you’ve retired.

Think about ways to avoid wasting money, and start putting a budget together now to meet your goals when you’re ready to retire.

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Author Details

Jenny Cohen

Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.