Planning for retirement can be daunting, particularly if you’re dealing with a tight budget for everyday expenses such as food or gas. It’s also likely you haven’t considered some important and sobering retirement realities.
Understanding what you will face during retirement will help you avoid making foolish mistakes as you save for your post-work years.
Following are some realities (and statistics) to consider.
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1. Baby boomers are busted
In early 2022, 47% of baby boomers retired, according to the Retirement Industry Trust Association.
But in 2019, only 11% of boomers said they had saved up at least $500,000 in their retirement savings accounts.
It's now more important than ever for any baby boomers who haven't retired to add as much money as possible to savings so they can truly be ready for retirement.
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2. Employees are only guessing
Do you know how much you need in retirement accounts before you can ditch your job for good? If the answer is “no,” you aren’t alone.
In fact, according to the Retirement Industry Trust Association, 43% of workers in the U.S. say they're only guessing when deciding how much they need to save to retire.
Instead of guessing, create an estimated budget for your retirement needs. Remember to include everyday costs like housing and utilities and one-time costs like traveling.
3. Women are at a disadvantage
According to the Retirement Industry Trust Association, women have an average retirement savings of $57,000. Their male counterparts, however, have an average savings of $118,000.
That huge discrepancy can make it more difficult for women to retire than men, causing them to work longer to save up enough money to retire comfortably.
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4. Health care costs are high
American retirees might assume that Medicare will cover all their medical costs. But that's not true.
In fact, an average retired couple who is both age 65 and retired in 2023 needed an estimated $315,000 in retirement funds to cover medical bills during retirement, according to research from Fidelity Investments.
5. Medicare might not start when you retire
Medicare doesn’t begin covering medical expenses until you turn 65. However, according to Fidelity Investments, the average retirement age in the U.S. is 62.
That leaves a three-year gap between the age at which many folks retire and when Medicare kicks in. These folks will have to be covered by some health insurance, the cost of which may have to be financed via retirement funds.
It won't cover all your health care expenses even after Medicare kicks in. So, factor in any additional costs for health insurance when you create a retirement budget.
6. Investing for retirement is daunting
You may be adding money to a 401(k) or 403(b) plan in hopes of saving for retirement. But then what?
In fact, 37% of employees who are 25 or older say they don’t know where to go to get retirement planning advice , according to the Employee Benefit Research Institute. And 19% of retirees have expressed the same concern.
Start talking to a financial planner now and exploring your options when considering your retirement future.
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You may dream of retiring on the beaches of California or Hawaii, but remember to consider the cost of living in your dream retirement home.
If you want to retire comfortably in cities like San Francisco or Honolulu, you may need more than $1 million in savings.
8. Retirees may still have jobs
Some Americans have discovered that retirement might not mean you no longer have to work at all.
A survey found that 64% of workers said they expect to continue working after retirement, according to a MagnifyMoney survey.
Continuing to work at least part-time after you retire can help cover unexpected costs or allow you to contribute additional funds to your nest egg if you don’t believe you have enough saved for retirement.
9. Social Security may not be much
Some retirees consider Social Security a significant part of their retirement budget. But the average monthly check for a Social Security retiree is less than $1,600.
Remember that your monthly payment can also vary greatly depending on the age you decide to start collecting Social Security.
Do some research to see how much bigger your monthly check might be if you defer Social Security until later in your retirement years.
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The notion of saving several hundred thousand dollars — at least — just to retire probably sounds daunting.
In fact, according to a recent survey from Sagewell Financial, nearly 30% of Americans between the ages of 55 and 67 have less than $10,000 in retirement savings.
Given that reality, it might be a good idea to review your current budget and find small ways to add money to your retirement accounts.
11. Bankruptcy is increasing
Retirees who haven’t planned properly for retirement may face another tough challenge: bankruptcy.
According to a 2018 study from the Consumer Bankruptcy Project, the rate at which people 65 and older file for bankruptcy has tripled since 1991.
According to the study, some factors that may be contributing to this increase include declines in income and increasing medical expenses.
12. Mortgages are part of retirement
You may think you don’t have to worry about a mortgage in retirement, but that is not necessarily so. A 2017 survey by American Financing found that 44% of retirees still carried a mortgage.
If you can downsize or pay off your mortgage before retirement, you may be able to lower your financial stress when you reach retirement.
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Preparing for retirement can be scary. However, making plans now can help you better understand how much you need to save to supplement your Social Security during your golden years.
Sit down with a budget and review your plans for spending in retirement. Consider everyday costs — including health care expenses — and one-time items like traveling or purchasing a new home.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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