You can follow all the rules, work hard and save the amount of money the experts recommend for your retirement and still get blindsided by an unexpected situation that wipes out your retirement savings and leaves you on shaky financial ground. There is a limit to how much money anyone can save for retirement, so advising you to save even more money for retirement might not be the solution.
Becoming aware of the threats to your retirement savings might allow you to avoid some of them or develop strategies, in case you find yourself in one of the situations one day. Here are some of the things that can drain your retirement savings.
Inflation and the Cost of Living
Remember what a newspaper, loaf of bread, or house cost 25 or 30 years ago? Chances are, those and many other things cost significantly more today than they did then. Many people live for two or three decades after they retire. If, for example, $4,000 of income would have provided a comfortable lifestyle in the year a person retires, it might not be adequate in 15 or 20 years.
The good news is that you can inflation-proof some of your living expenses. If you have a fixed-rate mortgage, you will lock down the amount of your housing cost. Of course, paying off your mortgage before retirement is an even better option. People who rent instead of buy, however, will face ever-rising payments for rent. That lovely apartment that cost $2,000 a month when you moved in could cost double that price after a few decades.
You can also press the pause button on some other expenses, like insurance. Some disability and long-term care policies offer a cost-of-living protection option. You should also check to see if your retirement plan administrator offers any fixed rate or guaranteed return investments that come with cost-of-living adjustments.
Spend Your Time, Not Your Money
When you are no longer working full-time, you might decide to get involved in activities you wanted to engage in before but did not have the time. Joining a local service club like Rotary or the Lion’s Club can be a wonderful way to connect with like-minded people and serve your community, but it can also be expensive. You will have membership dues, but those are just the start.
Many service clubs meet at mealtimes, so you will have to pay the cost of the meal, which is usually at a restaurant. Because service clubs perform projects to help deserving causes, there will be constant fundraisers and appeals for contributions. This is not intended to discourage people from joining service clubs, rather, to inform you about the costs involved if you choose to do so. Your community probably has a volunteer corps you can participate in at no charge, if your goal is to help others without going broke.
Face it. If you are retired, you cannot afford to get sick. The cost of healthcare goes up every year. Current retirees pay on average about $5,000 to $6,000 a year for Medicare premiums, copays, and prescription drugs. A significant medical crisis can wipe out your retirement savings.
Do everything you can to stay healthy. Eat well and stay hydrated. Talk regular walks and avoid falls. Stay away from sick people. You should also keep a positive attitude. Maintaining your health is one of the most effective ways to make sure you do not run out of money in retirement.
AARP. “5 Threats to Your Retirement Savings.” (accessed July 16, 2019) https://www.aarp.org/retirement/planning-for-retirement/info-2019/5-threats-to-your-retirement-savings.html