Are You Fully Prepared for Retirement?

While I always wanted to be an adult, never have I ever wished to myself to grow old. No one ever wants to grow old. At least, no one that I’ve talked to. The primary reason is that once you reach a certain age, your body starts to wear down and costs to maintain your health go up. This is the reason that I often dread talking to my grandparents. Conversation isn’t about anything other than body ailments. Whether it is someone’s hip that is hurting or movements that they can no longer perform, it never ends.

Don’t get me wrong, I love my grandparents. I just don’t want to grow old. As I think about growing old and planning for retirement, I can’t help but wonder if I am totally prepared for retirement. The number one concern of mines is not having adequate health insurance. With the increasing costs of health insurance, unless things start to turn around, I don’t see a bright future.

Anticipating Medical Costs in Retirement

No one really knows how much it will cost to take care of your health in 10-20 years. Heck, few people even know what it will be the year after next. This uncertainty is a huge challenge that we face as we save for retirement. While I am sure no one ever says that they saved too much for retirement, a lot of people do say they haven’t saved enough.

Those who reach age 65 will have a 40% chance of moving into a nursing home. I don’t know about you, but I sure don’t plan to spend my elder years in a nursing home, but who does. And yet, this is the future risk that we face. With costs of somewhere between $40,000-$90,000 per year, I can’t imagine how fast this would deplete family’s financial reserves.

Medical costs, whether it is long term care or not, is probably one of the highest costs for retired folks. My aunt and uncle recently retired and reported to me that they were paying $4,000-$5,000 per year for each of them just for high-deductible health insurance. That’s about 5x what I am paying right now.

The truth of the matter is that old age and deteriorating health create a huge impact on your financial status in retirement. While there is social security and other safety nets to protect you (somewhat), it shouldn’t stop you from preparing the best that you can while you can. When I think about retirement and the increasing costs of healthcare, it motivates me to cut my spending and save much more for retirement.

Making Plans for Retirement

If you are planning to retire within the next few years, it is important that you make plans for your retirement. Having a set plan ahead of time will help you out in the long run, especially because if you do not have many saved and things prepared, you may end up struggling to keep up with the cost of living upon retiring from the workforce. There are many ways for you to begin planning for your retirement, and remember that the sooner you start to save money, the more money you will have in the future when you need it the most.

Keep a Savings Account

If you have not already done so, open a savings account and begin saving money. Also, make sure you do not forget to add money as frequently as possible. Whenever you have a few extra dollars, you can deposit them directly into your savings account. Budget your money wisely and even if it seems you have extra money to spend, just put it off to the side and place it in your savings account because you are definitely going to need it in the future. When you open the savings account, be sure to ask the bank about interest. Some banks will allow your savings account to grow interest for as long as you keep it.

Contribute to a 401K Plan

Many employers offer the option of a 401k plan for employees. If this is being offered to you, take advantage of the opportunity and get started right away. Contribute as much as you can towards the 401k plan so that your current taxes will be a bit cheaper and so that you have money saved away for your retirement in the future. You may also be wondering, “Should I roll over my 401k? Maybe into a Roth IRA?” This is something that you can consider. It is most commonly performed after you have left a job that originally offered the 401k plan. You would be able to open a traditional IRA, which is an individual retirement account, and then roll your 401k over to a Roth IRA as a replacement.

Cut Corners Now

If you are planning to retire within the next few years, you may want to start cutting corners now, as this will help you to save money for the future. Cutting corners includes eliminating unnecessary expenses for products and services that you really do not need and can live without. It would also include budgeting and trying to use coupons to save money on shopping trips, especially when you are headed to the grocery store. There are many people who are able to save a good portion on their grocery bill due to the fact that they are using coupons that they have found in the local paper or on the web.

When you plan to retire, it is important that you know and understand your finances. You may have to cut corners now to start saving money for the future, but in the long run, it will be worth it. It is important that you have the necessary funds to survive off of so that you can retire from the workforce and enjoy life as a retired individual without the stress and wondering of how you will afford everything.

5 Unforeseen Expenses That Can Ruin Your Retirement

Retirement is the culmination of everything we worked hard for throughout the first two-thirds of our lives. It is the time when we can truly start to enjoy the fruits of our labor.

Well, ideally, it should be. But what if, before you even start to enjoy your rest and freedom, you discover certain financial obligations that you never even considered before. You find out too late that there are hidden expenses that you still need to pay for regularly. That will surely burst your bubbles fast on your last day on the grind.

With retirement, there are a lot of unforeseen expenses that some people fail to include in their plans or choose to ignore.

1. High Cost of Health Care

Growing old does not necessarily mean a failing health. But at 60 plus of age, even healthy people start to notice that they are not as strong and vibrant as before.  They are more prone to sickness. That is why as early as possible, you have to consider that health care may be one of the biggest, if not the biggest, expenses you have to face upon retirement. A big chunk of your retirement money can go to health care costs. The worst part is that medical cost gets higher and higher each year.

You have to consider this fact that at the time of retirement, the cost of medicines and health care can be staggering. The cost of health care also varies with location. So, if you plan to relocate, there is a possibility that the medical cost is different there from where you are now. If you have the option to choose, choose a place where health care cost is low.

2. Family expenses

The size of the family usually gets bigger as a person gets older. It is natural for retiring folks to want to help out in the financial obligations of other family members especially their children and grandchildren. If this is applicable to you then you have to consider this as additional expense on your part.

3. Housing expenses

Some people near the retiring age sometimes choose to buy a new house thinking that they will be spending a lot of time at home. If you want to purchase a new home before you retire then you have to include mortgage payments in your retirement planning as well. But whether you buy a new home or keep your current one, you still need to take into account common home expenses like maintenance, renovations and repairs.

4. Taxes and other fees

Aside from the usual tax on pension checks, there is a hidden tax in Social Security benefits. This tax is collected from individuals whose taxable income (including income from other retirement benefits) is high enough to reach a certain bracket. You might want to check if you will fall into this category. Other fees and taxes include taxes for maintaining former investments and properties. And also, if you are thinking of retiring then penalties can be imposed for early withdrawal from certain retirement savings accounts.

5. Effects of inflation

When planning for retirement, you have to include the effects of inflation. Keep in mind that the value of your money now will not be the same in the coming years. The purchasing power of your dollar may become weaker.  The estimated annual inflation rate is 3%. Cost of living is expected to rise by that much each year. The price of your everyday needs like food, transportation and utilities will be higher at the time of retirement as compared to the present.

FORESEE THE UNFORESEEN

It is easy to take into account how much retirement benefits you are going to get and yet fail to see how much you are going to spend.

Do not make this mistake. The best way to manage your expenses upon retirement is to be ready. So way before you retire, you need to consider all the aspects, including expenses. With ample planning, you can enjoy your retirement without worries or burdens.