Financial Concerns in Retirement
Concerns about finances drive many retirement-related decisions, such as how to invest, when to retire, whether to purchase additional insurance and how to meet fixed expenses. These concerns escalate with uncertain economic conditions and falling values in many traditional investments. Concerns about money affect your emotional health, relationships and enjoyment of free time. Knowledge and planning may help alleviate some common retirement financial concerns.
Other People Are Reading
-
Significance
-
Many retirees and people approaching retirement do not believe their financial assets are sufficient to support them the remainder of their lives. The National Retirement Risk Index, sponsored by Boston College's Center for Retirement Research, found in March 2010 that 65 percent of retirees were at risk of not maintaining their style of living in retirement when health care and long-term care were included in their needs and assets assessment. Bankrate found in 2008 that only 28 percent of those surveyed believe they can retire comfortably on their savings and retirement income. With baby boomers entering retirement, these numbers indicate that millions of people are concerned about financial resources.
Types
-
The American Association of Retired Persons divides the types of financial concerns into several high-level categories including budgeting, credit and debt, investing, estate planning and taxes. Many retirement income concerns revolve around inflation, interest rates on fixed-income securities, deflation and increasing longevity. Even when assets seem sufficient to meet lifetime financial needs, people worry about a reduction in income that would result from cuts in Social Security, Medicare and pension benefits.
-
Time Frame
-
People become increasingly concerned about their retirement savings two to five years before retirement, according to the 2010 Mindscape II study sponsored by Ameriprise Financial and conducted by Harris Interactive. Comparing results from a similar study in 2005, people expressed greater financial concern in 2010, hesitated more in committing to a retirement date and were more likely to spend their first year after retirement in a state of realization rather than with a sense of liberation. Concerns in the first year of retirement revolved around the loss of income and earning potential. The report suggests that following the realization stage, retirees experience a reorientation in plans and expectations and their financial concerns lessen.
Considerations
-
Knowledge provides a reality check and a potential salve for financial concerns in prior to and just after retirement. You need to know your expected income from Social Security and retirement plans, including required distributions from IRAs. You should total your fixed expenses such as taxes, home costs, debt payments, maintenance, insurance and necessities like food and clothing. Once you know your fixed expenses, you need to get an average cost of your discretionary expenses such as travel, purchases for small luxuries and charitable giving. Because these expenses are discretionary, you can choose to increase or decrease them based on your income and fixed expenses.
Planning
-
Planning helps deal with financial concerns before and during retirement. The "Senior Citizens Journal" suggests that you identify expenses you can change or eliminate, such as services you buy that you could do yourself, or services and goods you need less, such as dry cleaning, gasoline for commuting to work, professional fees or licenses and adding money to retirement savings. Create a budget for your first five retirement years and work with a financial adviser to ensure that you cover all relevant expense and asset items realistically.
-
References
- Photo Credit Dougal Waters/Digital Vision/Getty Images
