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Top 7 Retirement Concerns You Should Prepare For

An older couple preparing for retirement

Retirement is an important milestone in our financial lives. Therefore, you must carefully plan how much money you’ll need to live comfortably in old age. To do this, you’ll have to estimate both how much money you’ll have to save and spend. Here’s a breakdown of the top concerns you should prepare for.

A financial advisor can help you create a financial plan to pay for your retirement.

Retirement planning involves taking a strategic approach to managing costs, eliminating debt, timing withdrawals and budgeting for inflation. Here are seven top concerns that you will have to prepare your retirement nest egg for: 

Paying for Healthcare

You will face sizable out-of-pocket costs for health insurance premiums, copays and uncovered services. According to research from the brokerage firm Fidelity, an individual aged 65 in 2023 could need roughly $157,500 saved after taxes to pay for healthcare expenses in retirement. This estimate is doubled to $315,000 for an average retired couple that is the same age.

Recommendation: Consider opening a health savings account (HSA), if eligible, which offers tax advantages for medical costs. You may also want to look into long-term care insurance options, maintain a healthy lifestyle to reduce potential healthcare costs and incorporate healthcare expenses into your retirement budget. 

Saving Enough Money

A recent survey shows that more than 500 investors believe that they’ll need between $3 and $5 million to retire comfortably. While this amount of money is out of reach for many Americans, there are still a few strategies that you can employ to maximize your savings.

Recommendation: Start saving early and consistently, take advantage of retirement accounts like 401(k)s and IRAs, increase contributions as your income grows, consider employer matches and diversify your investments.

Carrying Debt Into Retirement

According to the most recent data available from the Federal Reserve’s Survey of Consumer Finances, households aged 65-74 carry an average debt of $105,250. And those who own a home in this age group, the average mortgage debt is $152,890.

Recommendation: Before retiring, aim to reduce high-interest debt, such as credit cards or high-rate loans. Create a strategy to eliminate remaining debts during your retirement years by budgeting and allocating a portion of your retirement income toward debt repayment.

Outliving Your Money

Husband and wife reviewing their retirement plans

The success of your retirement plan will largely depend on how accurate your answer will be to this question: How long will you live? A recent study found that less than 40% of Americans understand their longevity. Estimating how long you will live is crucial to determining how much money you will need to save for retirement and how much you will have to spend. 

Recommendation: Use research to help estimate your longevity. Another study, for example, found that the average length of retirement for men in 2020 was almost 19 years. And someone who’s 65 in 2023 has roughly a 50% chance of living two more decades. Additionally, you can grow your nest egg by adding an annuity or income-generating investments to your retirement plan, and adjust your withdrawal rate based on market conditions and portfolio performance. 

When to Draw Your Social Security

Claiming Social Security before full retirement age at 67 will cost you. You can start collecting Social Security benefits at age 62. But doing this will cut down your benefits to 75% of what you could get at full retirement age. However, if you can wait until age 70 to claim Social Security, you’ll earn 132% of that full retirement amount.

Recommendation: One way to offset taking Social Security benefits earlier could be to take money from your retirement account instead. You can do so without penalty at age 59 ½. And drawing down your retirement account early can also reduce your overall account balance sooner, which might help you avoid getting bumped into a higher tax bracket later after required minimum distributions kick in.

Not Allocating Retirement Assets Correctly

The general rule for asset allocation in retirement says that you adjust your retirement portfolio toward conservative investments after you retire. You typically do this because you no longer have active income to replace any potential losses. However, because you’ll need to protect your nest egg against longevity, you may also think about maintaining some growth-focused investments. 

Recommendation: Adjust your asset allocation based on your risk tolerance and income needs. If you need to continue growing your investments, you may want to look for additional sources of income. These can include annuities and certificates of deposit (CDs), as well as bonds and a reverse mortgage. Though make sure to understand the risks involved before investing.

Not Accounting for Inflation

Inflation can eat into your retirement savings over time by reducing your purchasing power – living on a fixed income could limit your ability to pay for retirement expenses if your Social Security, pensions or annuities can’t keep pace with rising costs.

Recommendation: Factor inflation into your retirement planning by investing in assets that can potentially outpace inflation, such as stocks. Consider investments that provide inflation-adjusted income, like TIPS (Treasury Inflation-Protected Securities), and reassess your retirement budget periodically to account for rising costs.

Bottom Line

A retired man concerned about longevity risk.

Saving for retirement early will give you more time to invest in your nest egg, and more time to earn money through compound interest. When planning for retirement, focus on both saving and spending. Make sure you also time when you will take your Social Security benefits and how much you will withdraw from your savings so that you can minimize the risk of outliving your retirement.

Retirement Planning Tips

  • If you’re looking for ways to build your retirement nest egg, a financial advisor can help you create a retirement plan based on your needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset’s asset allocation calculator can help you figure out the allocation that makes the most sense for your retirement portfolio.

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