I'm excited about retirement — but scared at the same time. How do I keep calm? Here are 3 big fears Americans have about retiring. (And how to address each one)
Death and taxes may be certain, but there’s a fear as ominous as either. Or worse, for some.
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A recent study by Zety found that about 40% of Americans feared retirement more than death. The question is, how did something so potentially life-giving take on such a potent fear factor?
Whether you’re days or decades away from retirement, these three fears about retirement keep countless Americans up at night. But the best way to put those worries to rest is by facing them head on. Here’s how to ensure your anxiety doesn’t stand in the way of the retirement of your dreams.
Fear one: You’ll outlive your savings
Prudent as this fear may sound it’s not exactly reassuring, especially as science progresses towards increased longevity. As of 2021, the average American now lives to about 76 years, according to the National Center for Health Statistics (NCHS). Yes, that’s a slight tick downward from 2020, but that was a year when COVID-19 ran rampant.
Compare that to 1900, when U.S. life expectancy was just 47 years, according to the American Medical Association. But all that extra time comes with some not-so-good news: Nearly half (48%) of Americans are concerned about outliving their savings, according to a 2020 study by the Transamerica Center for Retirement Studies.
Let’s tackle this fear first. First, create a budget that addresses both day-to-day spending and longer-term retirement expenses. This should include all home bills for mortgage and utilities, taxes, monthly payments and household spending. Looking for some easy breathing room? Pay off high-interest credit cards, which over time will sap your spending power — especially if you’re only making the minimum payments.
You could also work part-time, put off retirement by shifting to a less demanding job, or supplement your income through freelance work. Any of these moves can help you to delay tapping your Social Security benefits. Once you reach your Full Retirement Age (FRA), monthly benefits increase by 8% each year until age 70. So that’s a lot of cash to defer.
Finally, meet with a qualified financial adviser. Nothing’s scarier than vagueness around money, and an adviser can bring your full picture into focus. They can help you craft a retirement plan based on current spending and income, including retirement account assets or possessions you could liquidate. In fact, you don’t have to wait for retirement to set up a meeting.
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Fear two: You’ll encounter higher health care costs
While those aged 65 and older receive Medicare, the benefit certainly can’t cover everything. In fact, a 2021 study from Fidelity Investments suggests American couples 65 and older will need about $300,000 to cover health care costs during retirement: an 88% increase from 2002.
No wonder so many Americans are afraid — but you can easily manage this fear. First and foremost, make sure you’re actually enrolled in Medicare to avoid penalties and higher premiums in retirement, costs that can add up quickly.
Then, take it a step further and consider supplemental insurance. Those purchased through Medigap or Medicare Advantage can help cover out-of-pocket costs beyond Medicare. Then, research to compare drug costs and medical procedures. The site ClearHealthCosts provides comparative pricing information for select areas of the U.S.
And as any doctor will tell you, preventative measures are much cheaper than procedures. You’ve heard it before but now’s the time to do it: eat right, exercise, and get regular checkups on the upside; seek help with smoking cessation, excessive drinking and drug abuse on the downside. And keep in mind that chronic conditions like heart disease and cancer continue to rack up the largest health care costs in America, according to the CDC.
Fear three: You’ll run up against runaway inflation
Purchasing power disappears over generations when you fail to factor in inflation. The recommended amount to save for retirement continues to rise yearly, according to Fidelity Investments. (Right now, Fidelity recommends that by the time you’re 67 you have 10 times your current income saved.) Among those who decreased essential or discretionary spending since the pandemic, 9 out of 10 retirees cited concerns about inflation, according to a 2022 Employee Benefit Research Institute study.
You can’t solve a problem beyond your control but you can plan. Investments that historically have outpaced inflation include stocks with long-term positive track records (and often dividends), as well as real estate or Treasury Inflation-Protected Securities (TIPS).
No matter your approach, diversify your portfolio and of course, review and adjust your retirement plan at least yearly. Inflationary cycles often last just a year and at most a decade. Even if the American economy stumbles into the longer end of that timeline, smart preparation will help you ride the storm out — and provide a nice tailwind once the cycle ends.
Whether you’re succumbing to one, two or all three of these fears, remember that the best thing to do is mobilize. Get advice, make time-tested financial moves, run the numbers — and most of all, turn those vague feelings of anxiety into tangible challenges you can and will tackle.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.