When we think about seniors who are struggling financially in retirement, we may be inclined to think of people who didn't bother to build any savings and are instead living on Social Security alone. But the unfortunate reality is that a lot of older Americans are struggling financially even with personal savings on top of Social Security. The reason could boil down to the fact that a lot of people simply underestimated the amount of savings they'd need.
In a recent Nationwide survey, older Americans were asked to point out what advice they'd give to their younger selves in the context of retirement planning. A good 23% had one telling thing to say.
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"You need more money than you think you do"
One big misconception surrounding retirement is that you won't need nearly as much income as you did during your working years because your expenses are going to shrink. But when you dig deeply, you might come to the realization that a lot of your costs are going to stay roughly the same.
Think about housing. You may have a paid-off mortgage, which is helpful. But as your home ages, it might need more work. An uptick in maintenance and repairs could cancel out your mortgage savings.
Then there's food. Your need to eat isn't going to change simply because you're retired. And if you were privy to years of free coffee and food at the office, well, you may find that your grocery bills are even higher in retirement.
Furthermore, you may end up spending a lot more time at home once you're no longer working. So while you might save on a commute, that may be counterbalanced with higher utility bills.
There's also healthcare to consider. Healthcare is the one expense that might actually increase for you in retirement. That's because aging tends to bring about medical issues. And while you're eligible for Medicare once you turn 65, the out-of-pocket costs you face under the program may be more than what you've bargained for.
Save more while you still can
Of course, many seniors do find that they're spending less across the board in retirement than during their working years. But still, there's a good chance you'll end up needing more income than expected. So to avoid a financial crunch later in life, do your best to boost your personal savings rate during your career.
Let's say you're currently socking away $300 a month in an IRA or 401(k) plan. Increasing that monthly contribution to $350 could provide you with a lot more income down the line once you account for investment gains.
You may also want to consider extending your career by a year or two if you're nearing retirement and are not confident in the amount of money you've saved. Not only might that help you boost your IRA or 401(k), but just as importantly, you'll leave your existing savings untouched for a longer period of time.
Retirement has the potential to be surprisingly, or even shockingly, expensive. Save as well as you can in case your costs end up coming in higher.
