Obstacles To Your Retirement

Obstacles To Your Retirement

What are the biggest obstacles to retiring when you want to? Whether you are two years from retirement or 20 years, we all face similar obstacles. Today, we discuss the three biggest obstacles to your retirement.

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Obstacle 1: Health Insurance

Many people would like to retire at 62 or younger. But there is a big problem. Health insurance at that age can be very expensive. Depending on where you live, premiums for health insurance can cost between $1,200 and $1,800 per month, per person. That means $2,400 to $3,600 for a couple. You can also expect those premiums to increase a significant amount each year.

The coverage may also not be as good as what you currently have. Many policies have high deductibles and limited options for providers and hospitals. You also may not have prescription coverage.

What can you do to overcome this obstacle?

Delay Retirement

The most obvious answer is to wait until 65 to retire. At that point, you are eligible for Medicare, which is a lot less expensive.

Dedicated Savings

If delaying retirement is not an option, maybe you want to consider saving more. Consider creating a dedicated account designed to cover your health insurance premiums. If you already have a health savings account, that may be a way to help. But you want to be careful using your HSA. You cannot use your HSA to pay for health insurance premiums if you deduct or claim a tax credit for those costs on your return.

Take More Income from Savings

The other thing you can do is to take more income from savings early in retirement. Doing this can add risk to your nest egg. If your investments struggle, a higher withdrawal rate could create problems.

Obstacles to Your Retirement
Obstacles to Your Retirement

Obstacle 2: Mortgage Debt

The second major obstacle is mortgage debt. It tends to be one of the larger items in your budget. According to the Employee Benefit Research Institute, people between the ages of 65 and 75 spend on average $21,000 per year on housing costs. More people are retiring with mortgages than they did 10 years ago. A mortgage can be a significant part of that annual total. How can you overcome this?

Prioritize Paying Off Your Mortgage

If you have a few years until you retire, make paying off your mortgage a higher priority. Saving is important , but eliminating this debt will improve your retirement cash flow.

Many people earn more on their savings than what they pay in interest. But the impact of compounding returns over five or ten years isn’t as significant. Paying off the mortgage can have more long-term value to you when thinking about your retirement.

Refinance Your Loan

You may want to consider refinancing your house, especially right now. Mortgage rates in 2020 are as low as they have ever been. Refinancing can reduce your interest rate and spread the payments over more years. This can reduce your payments. It is not ideal, but it’s better than putting too much strain on your nest egg.

Downsize

Consider downsizing. Sell your house and use the equity to buy something smaller where you may not have the debt. You may not need all that space anyhow. Downsizing could also lower your insurance premiums and property taxes.

Obstacle 3: Inadequate Savings

Most people will struggle to retire on their terms because they did not save enough. How can you overcome this?

Save More

If you have a few years before you want to retire, make saving a higher priority. Re-examine what expenses are critical to enjoying life and cut those that are not.

Pursue Growth

Be more growth oriented. Pursuing higher returns can help you accumulate more. This works better if you have a longer timeframe. Remember, there could be some rough periods where things could be very difficult.

Delay Retirement

The third thing you can do is delay your retirement date. Waiting to retire gives you more time to save. It also reduces the discounts to Social Security or pensions.

Consider Working Part-Time

You can also consider other ways to supplement your income such as part-time lower stress work.

Simplify Your Life

Consider simplifying and minimizing your lifestyle. You may have to scale back on some things and reduce expenses to make retirement work.

Your retirement decision is about balancing risks. Increasing the income from your savings increases the risk of running out of money. But, waiting to retire means you have less time to enjoy your golden years.

There are no one-size-fits-all rules. You need to make the right decision for you and your family. And you need to make the best decision you can with all the information available. If you would like help going through the numbers, talk to a financial planner.

Talk To a Financial Planner

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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Offered Early Retirement? Start Here.

Offered Early Retirement? Start Here

A listener was offered early retirement.  There is a lot to consider before making your decision to retire—even if you weren’t offered an incentive.  If you’re thinking about retiring soon, and don’t know where to begin, start here.

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This week we have a question from David. He writes, “I’ll be 62 in the spring. My employer has offered early retirement. How do I know if I can make it work?

This is an excellent question. Let’s cover some of the basics.

Know Your Numbers!

This means your income and your expenses.

Your Savings

How much have you saved? And how much income can your nest egg provide? This is an important thing to determine. The more you withdraw from your nest egg, the greater the risk of running out of money during your lifetime.

You want to get as much as you can without putting too much stress on that account.

Pension

Are you going to get a pension? If so, how much will it be? Should you consider a lump sum payout if it is available? This is an important decision to make. For some people taking the monthly payments makes the most sense. For others, taking a lump sum is a better choice. You will want to work through the numbers and determine what is right for you.

Social Security

You need to make a decision about your Social Security. You are eligible to start your Social Security at 62. But that comes with big discounts. Can you wait to take your Social Security until age 65 or your normal retirement age? Waiting to start your benefits reduces the discount. This can result in thousands of dollars of additional benefits over your lifetime. But it does not always make sense to wait. Sometimes it makes sense to start it at 62 if you need to. Please look at this decision very carefully.

Early Retirement Incentive Payment

If you are getting an incentive to retire, how will that impact your cash flow? Does the payment mean you will not have to take income from your 401k? Does it provide enough income so you can delay your Social Security?

If you can use that money to pay your expenses, you can reduce stress on your savings or improve your Social Security benefits.

Expenses

Knowing your expenses is very important. Look at what you are spending now and how it will change when you retire. Certain things in your budget are going away. You are not going to be driving to work every day. You won’t be buying clothes for work and you may spend less on meals, too.

Some expenses might increase. You may play golf more often. You may have other hobbies that cost money. That means you might be spending more on some things.

If things are tight, is there anything that you can cut from your budget? Are there lower priority expenses that you can drop to help make things work for a few years.

Spending is a major component of your long-term financial success. In fact, overspending can be one of the biggest reasons people run out of money.

Debt

Do you have a lot of debt? Loan payments can be a significant expense, especially car payments and mortgage payments. Can you can use your early incentive payment to eliminate some of those debts? That could have a big impact on your cash flow. You need to work through the numbers to see if this is worth considering.

You may want to consider refinancing your mortgage. This isn’t an ideal strategy. The ideal situation would be to be debt free when you retire. Refinancing your mortgage could lower your monthly payment and help your budget.

Early Retirement Offer Start Here
early retirement offer start here

The Big Issue: Health Insurance

Because you are only 62, one of the biggest things that you will face is buying health insurance. Recently, we have heard quotes for coverage between $2,000 and $3,500 a month. This is a very significant expense. You can expect the premiums to increase each year until you are eligible for Medicare.

Most of those policies are going to have big deductibles, and the coverage may not be ideal. You may also have to change doctors, and you may not be able to go to your preferred hospital.

The health insurance marketplace in our area is very difficult right now. But, if you can figure this out, you have a real chance to make early retirement work.

Your Spouse

Is your spouse going to retire or continue working? If they are going to keep working, how will they adjust to you being home all day when they have to get up and go to work? Maybe they are retiring too, and you both will have to adjust to both of you being home all day.

Practical and Objective Advice

You want to make the right decision for your family.  Consider talking to a fiduciary financial advisor to help you work through the numbers.
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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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3 Ideas to Plan For Lower Returns

3 Ideas to Help Plan for Lower Returns

What we earn on our nest egg is a key component to our future plans. Over the past month, we talked about the potential impact of both lower bond and stock returns. What can you do to prepare for this? Today we’ll share 3 ideas to help you plan for lower future investment returns.

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3 ideas to help plan for lower returns

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3 ideas to plan for lower returns

Check out the other episodes from this month...

All month long, we’ve talked about the possibility of lower future returns for both stocks and bonds.  

What happens if future returns are less than historical averages? Bond yields indicate the future results from those investments could be well below their averages. And many “experts” believe future stock returns could also be less. This combination creates some significant challenges as you head into retirement.

Here are 3 things you can do to plan for lower future returns.

1. Delay Your Retirement

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Delaying your retirement improves your Social Security and pension benefits (if you will receive a pension). This works three different ways.  It shrinks the discounts you face for early retirement.  It increases your primary benefit. Or, with Social Security, you can receive delayed retirement credits. 

Waiting to retire also helps solve a problem with health insurance in retirement.  You are eligible to receive Medicare at age 65.  This means you won’t have to buy an expensive individual health insurance policy. 

Delaying retirement also allows you to reduce debt, save more, and benefit from compounded returns.

2. Monitor Your Spending

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In my experience, the primary reason people run out of money in retirement is overspending. The more you withdraw from your nest egg, the higher the chance you deplete your savings. Take a good look at your retirement budget. Try to find expenses or costs you can eliminate.

3 ideas to help plan for lower returns

3. Own More Stocks

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Investing involves a trade off. Trying to earn more can mean the short-term shocks are more severe. But, it may be necessary to consider an allocation that provides more opportunities for long-term growth. This may be hard to do, considering we haven’t completely recovered from a pretty steep drop. But in the long-run, the risks could be worth it, even if it is for a short period of time.

Be Flexible

It is important to be flexible.  The plans you created may need to be adjusted as the world around us changes.  None of us know what future returns will be.  But we need to consider what happens if future returns are lower.  Making good decisions now can help improve your chances for longer term success.  And, if things turn out better than expected, everything will be fine.

3 ideas to help plan for lower returns
3 ideas to help plan for lower returns

 

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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4 Ways The Pandemic Could Impact Social Security

4 Ways the Pandemic Could Impact Social Security

Social Security is the cornerstone of retirement income for many Americans.  Have you wondered if the Coronavirus outbreak will impact your benefits? Here are four ways the pandemic could impact Social Security.

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4 Ways the Pandemic Could Impact Social Security

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The Covid-19 Pandemic and the Economy

The Covid-19 virus has turned the world and the economy on its head. The financial impacts are being felt far and wide. We have record unemployment claims, with nearly 22 million people out of work–so far. And Pew Research estimates 27% of American workers have seen their pay reduced.  Government response has also been extreme.  All of that will impact the future.

Most of the media focus has been on how this outbreak has impacted current workers. But it can also affect retirees. Here are four ways the pandemic could impact your Social Security benefits.

pandemic social security impact

Social Security does provide an inflation-adjusted income stream. But over the past several years those average increases have not been all that great. In some years, it hasn’t been enough to cover the increase in Medicare premiums. 

According to the Federal Reserve Bank of Cleveland, the current 10-year inflation expectation is less than 1.2% per year. If those projections hold, it means small benefit increases. In some years, it could mean your net check decreases due to rising Medicare costs.

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Pandemic Impacts Social Security

Depending on how long the economic shutdown lasts, many older workers could be forced to retire earlier than they expected. For many, this forces them to start Social Security earlier than their normal retirement age. And those discounts could be close to 30%.  

Social Security Impact pandemic

Social Security uses Average Indexed Wages to compute your Social Security benefits. The economic downturn means total wages earned in 2020 will be less. They could be a lot less.

This could impact how they compute your Social Security benefits. The end-result could be a smaller monthly payment. This will most likely impact those who are close to age 60.

Are You Ready to Retire?

If you are 50 or older, and thinking about your retirement, click here for a free retirement assessment.

Pandemic Impacts Social Security

Right now, fewer payroll taxes are being collected. This places an extra strain on an already stressed system.

Prior to the pandemic, Social Security looked to be solvent until 2034. This means they had enough to pay the promised benefits. But the reduced tax collections could mean the problems could happen a year sooner.

Unless there are major changes, when Social Security reaches this point, benefits will have to be reduced.

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Far Reaching Impact

The coronavirus pandemic has affected more than our health. It has had a significant impact on many areas of our economy. And this includes your Social Security benefits.

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

Our Most Recent Videos And Posts