Yahoo Finance Financial Planners: All the Things That Happen When You Fail To Save for Retirement
Retirement — is it a destination that’s just on the horizon, or does it feel like it’s decades away? Either way, it’s important to make sure that you have enough savings in place, some passive income and a few other financial matters in order before you clock out of work for good.
Not adequately preparing for retirement can put you in a bind if you are 65 plus, have nothing in your savings account and are solely relying on Social Security to get you through your golden years.
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Kevin Huffman, the owner of Kriminil Trading, cited a National Endowment for Retirement Security survey, which stated that 45% of all retirees say they don’t have enough money to live comfortably.
“Put another way, many retirees have a hard time affording everyday things — from basic household items to housing and healthcare,” said Huffman. “Over the longer term, the damage can be even greater. Social Security does not provide a standard of living anywhere near what a person enjoyed before retirement. The average Social Security benefit provides only about 40% of pre-retirement income.”
GOBankingRates spoke with Huffman and a few other financial planners to discuss the consequences of failing to save for retirement.
Work Continues
You might have retired from your career, yet you could find yourself in need of money for basic cost of living — and that means you have to go back to work in some capacity.
Individuals who do not properly prepare their finances for retirement “might need to delay retirement or continue working past their retirement age,” said Doug Roller, the founder at Crossroads Financial Group.
“Most people who are able to work will need to continue working either full time or part time,” agreed Stephen Kates, the principal financial analyst at Annuity.org.
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Assets Need To Be Sold Off
If retired people over the age of 65 cannot go back to work, they “may need to rely on other sources of income, such as selling assets, borrowing money or receiving assistance from government programs,” Roller noted. “These options can come with their own set of challenges and potential shortcomings.”
“Selling assets, for example, could result in losing out on potential future growth or having to pay capital gains taxes. Borrowing money could lead to high-interest debt that is difficult to repay,” Roller added.
Medical Expenses Could Be Bankrupting
As we get older, we require more care and attention to our health. Upon retirement, you might qualify for Medicare to cover the cost of your medical expenses, but it’s not an all-encompassing solution. If you do not have financial backup in some form for unexpected health costs, you could find yourself bankrupt or crippled by medical bill debt.
“Medicare helps, but does not cover long-term care. Medicaid covers long-term care but only after you have spent through your assets and income — i.e. you need to be broke,” explained Jay Zigmont, founder of Childfree Wealth.
“Long-term care costs $115K per year on average, and men use 2.2 years of care, women 3.7. If you don’t have a plan for long-term care, you will need to go broke and rely on Medicaid, which tends to not be the best care,” Zigmont said.
Standard of Living Drops
If you need to go back to work, then you do not have time to relax, see your family or do the things you hoped for in retirement. If you need to downsize your house, you could find yourself in a strange living situation that you did not plan for post-work.
“Seniors could struggle to maintain their standard of living and may need to make significant cuts to their expenses,” said Roller. “Failure to save for retirement could lead to increased stress and anxiety factor about your financial situation, which can negatively impact your mental and physical health.”
“Rising costs, such as rising property taxes or other items whose costs grow faster than your Social Security income, may leave you unable to afford your housing, medication or other essentials,” Kates pointed out.
Tips To Plan for Retirement
If all of these potential outcomes for retirement without proper planning are sending a shiver down your spine, do not worry. There are ways to avoid falling into these scenarios.
“Despite being late to the party, there is no better time to save than today,” Kates recommended. “Any amount of money that can be set aside for emergencies can provide much needed financial security in retirement.”
“Delaying Social Security as late as possible is important, ideally until 70 years old, when benefits will reach their maximum amount,” he advised.
He pointed out that living only on Social Security leaves you in an inflexible situation, with little financial cushion for emergencies and unexpected expenses. “Without an emergency fund or other assets to rely on, any unexpected expense could place you in debt or cause you to have to choose between paying for necessities.”
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This article originally appeared on GOBankingRates.com: Financial Planners: All the Things That Happen When You Fail To Save for Retirement
