If you think you aren't saving enough to meet costs in retirement, you could be right — and you wouldn't be alone. A 2017 survey of American workers by the Employee Benefit Research Institute (EBRI) found that 67 percent of those without retirement plans are "not too confident" or "not at all confident" that they have sufficient money to support themselves through retirement. And what about those with retirement plans? For that group, nearly 30 percent indicated the same concerns.
So, what's the reason for this unease? It could all boil down to the reality that basic costs in retirement are often difficult to foresee. Of retirees surveyed by EBRI, 20 percent found that health care costs were much higher than anticipated, while 13 percent found "other expenses" much higher than anticipated. Here's why you might need to save more than you think.
Hidden Costs of Retirement
In its report on Spending Patterns of Older Households, the Employee Benefit Research Institute (EBRI) noted that median spending was higher than median income by $3,000 for single and retired individuals in 2015. The hidden costs of retirement can contribute to increased spending.
What are those "other expenses" — and how could you prepare for them? One of the most frequently overlooked and unpredictable costs in retirement are rising condo or homeowners association fees. If you plan to live in a community managed by a homeowners association, consider perusing the organization's past financial reports to determine if the fees have significantly increased over the years. You may also want to consider any dues or required costs for golf course maintenance, clubhouse food and beverage packages and other extras offered by some communities.
Inflation could also affect costs in retirement for basics like food, clothing and home repairs. Consider bulking up your expected retirement budget to account for this, as it could help ensure that your finances stay on track in the years to come. Another expense many retirees don't consider is transportation. Even if you own your car when you retire, you would still need to pay for the ever-increasing costs of insurance, maintenance and repairs. Learning about the hidden costs of retirement could help you better prepare for what tomorrow might bring.
Expect the Unexpected
Working adults have a variety of options to help them weather tough financial times and unexpected expenses. However, securing bank loans, remortgaging property or working a second job might not be feasible for retirees. The bottom line: You are likely the only person responsible for financing your retirement. Chances are you don't want to join the likes of those who scramble to find ways to supplement their retirement income. Saving and investing in individual retirement accounts, annuities, certificates of deposit, 401(k) retirement savings and long-term care insurance now could help you avoid an uncertain future.
So, what are some other ways you could prepare? Some strategies to meet costs in retirement include adjusting your personal budget, reducing spending, reducing the cost of health and car insurance, returning to work or renting out a room in your home, according to the EBRI survey.
Get a Jump-Start on Savings
Not sure how to start saving? You could consider the following strategies now to build up your financial foundation. Do you give financial support to adult children or other relatives? It's possible that you could start decreasing the amount you give. This could help them become more independent, learn important money-management skills — and free up more retirement funds for you.
You could also evaluate whether you're able to save specifically for health care. Extra savings could be used for moving to a nicer retirement home or remodeling your existing home to be more accessible. In addition to these options, consider establishing savings specifically for health care, since Social Security's annual increase doesn't cover today's rising health care costs, according to Time's Money magazine. From prescription drug prices and physicians' fees to other medical expenses, you don't want to be caught off guard if prices increase in the future.
Another thing to consider? Be mindful of the required minimum distributions for retirement accounts and check the age at which such distributions begin. If you don't withdraw from them, you could face stiff tax penalties, according to the Internal Revenue Service — and no one wants that! It might also be a wise idea to double-check when your age entitles you to property tax breaks in your state since they are not automatic.
Finally, check the benefits from your employer. Some employers significantly increase your retirement benefits if you work past age 65. Others begin to deduct retirement income if you work past age 70. It could be helpful to understand which retirement age will financially benefit you.
You might need to save more for retirement than you think, but thankfully there are many options and strategies that you could consider. By planning and preparing for the future, you could help ensure that you are ready for whatever the future holds.