Whether you’re planning for early retirement or counting down the days until you can claim your pension and move to Florida, we’re guessing your dreams for old age are full of good times and easy living.
But if you ignore some tough realities about getting older, your golden years can end up gloomier than you were hoping.
Avoid a rocky retirement by wising up to these 10 hard truths about getting older.
Most 65-year-olds will live for another 20 years
It’s impossible to predict just how long you’ll live after retirement, but a typical U.S. adult who is 65 today will live another 20 years, according to the Social Security Administration.
About one in three will live until they’re 90, and one in seven will live until age 95 — around 30 years after the typical retirement age.
A long life is something to celebrate, but a high quality of life doesn’t come cheap. The brutal reality is that the longer you live, the more money you’ll need to have saved during your working years to maintain a nice standard of living.
32% of older adults will be working in 2030
In the year 2000, just 19% of adults between the ages of 65 and 74 were still part of the American workforce, as were 5% of adults age 75-plus, according to a J.P. Morgan report. Over the next two decades, those numbers jumped to 27% and 9%, respectively.
The percentage of Americans working between ages 65 and 74 will likely increase to 32% by 2030, while 12% of Americans 75-plus will do the same.
What does this mean for your future? Depending on how close you are to retirement right now, there's a 30% chance you’ll still be an active part of the American workforce a decade down the road.
While 52% of retired adults say they work to maintain a sense of connection, 27% work so they can afford extras and 17% say they have to work to make ends meet.
You should have saved at least 10% of your income
It’s a solid financial rule of thumb to save 10% to 15% of your income — at minimum — solely for retirement. So, if you earn $50,000 a year, you should put no less than $5,000 into your retirement account.
If you're still working and aren’t currently saving 10% or more each year, increase your savings. If you're near retirement and haven’t saved this amount, count on living off less once you retire.
Not saving early makes it tougher to create a big nest egg
Thanks to the reality of compound interest, saving early and consistently almost always build a bigger nest egg than investing in a retirement plan later in life.
An investment with compounding interest means you don’t just earn interest on the sum you initially invested, but also earn interest on the interest itself.
The earlier you invest, the more time you will have to let compound interest work its magic. By contrast, the longer you wait to start investing in your retirement fund, the less time you have for your investments to grow.
That means those who procrastinate need to save larger amounts of money to retire comfortably compared to if they had started preparing for retirement in their 20s.
Pensions are becoming less common
Pensions, or fully employer-funded retirement benefits, were more common 50 years ago than they are today.
Just over 50% of the Silent Generation retired with a pension, J.P. Morgan says. That means they were guaranteed a post-retirement stipend that they could supplement with their own savings to maintain a high quality of life into their golden years.
However, pensions are much harder to find today. Overall, just 30% of U.S. households have a pension. Today’s American workforce relies on self-funded retirement vehicles like 401(k) plans.
So, no matter how old you are right now, your ability to live comfortably in retirement will likely depend on your own savings. Aside from a 401(k) plan annual match — which you should take advantage of if you can — do not expect a lot of help from an employer.
Don't withdraw more than 4% annually from savings
If you want your retirement savings to last the rest of your life, many experts say you shouldn’t withdraw more than 4% of your retirement savings each year.
That limit doesn’t give you much spending flexibility, so you might need to stick to an even stricter budget once you retire.
Additionally, if you live well into your 90s and beyond — or if your investments perform particularly poorly — you might run through your savings before the end of your life even with that 4% cap.
That’s especially true if a medical condition or family emergency requires you to withdraw a large amount from your retirement fund for a few years in a row.
Pro tip: Worried you might not have enough in savings to finance a long retirement? Look into the many ways you can earn extra cash to build your nest egg.
Housing makes up 41% of expenses for older adults
Conventional wisdom holds that you won’t need as much money to live off once you’re retired, but the difference between your pre-retirement and post-retirement spending might not be as big as you think.
For Americans between the ages of 35 and 44, housing expenses account for more than 41% of their annual spending, J.P. Morgan says. For Americans 75-plus, that number drops — but only to 38%.
If more than one-third of your dollars are going into housing right now, count on that trend continuing into retirement.
Social Security checks won’t go as far as you think
In 2022, the average Social Security benefit is nearly $1,700 a month. If you postpone receiving benefits until age 70, your monthly check will be much higher than that average.
Still, it is tough to live on Social Security alone, and the Social Security Administration notes that the program was never designed to entirely fund retirement.
So, if you’re planning on living off of Social Security alone, you should probably think again.
You’ll spend more on health care once you retire
While costs like transportation go down in retirement, health care costs tend to increase significantly. Americans between the ages of 35 and 44 spend just 7.3% of their budget on health care costs, but that percentage nearly doubles to 14.2% for Americans 75-plus.
How much you will actually spend depends on factors such as how long you live, how active you stay, and what medical conditions you develop. But many retirees can expect to spend more on health care as they age.
Older adults are more likely to develop disabilities
About 36% of adults 65 and older report having at least one disability, according to the U.S. Census Bureau. This is a natural consequence of aging and partially helps explain why health care costs increase as you age.
However, if you have the misfortune of developing an expensive disability — especially early in retirement — it will be even tougher to extend your savings over the next several decades.
It’s hard to confront some of the harsh realities of getting older. But the earlier you face these truths and start financially preparing for your future, the better.
Planning for the changes that come with growing older can help you avoid big money mistakes and put you in a position to enjoy the hard-earned retirement you’ve always hoped for.
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