Everyone dreams about a long, happy retirement but not everyone realizes (until it’s a bit too late) that a retirement has its own downsides. Definitely, there is a lot more to retirement than meets the eye and without careful planning, you might be in a kind of a trouble.
Here are a few secrets about retiring that no one really wants to talk about, but you need to be aware of them before you reach your retirement.
Let’s start with the most obvious – Social Security
Do you fully understand how Social Security works and do you know that how early you claim it affects how much you eventually get? According to the Center for Retirement Research at Boston College, the vast number of people claims their Social Security the moment they are liable for that, which is at the age of 62. Afterwards, they are surprised by the amount they get, not knowing that their benefits are reduced by claiming Social Security early – even by 30% in some cases.
Also, your Social Security check can be additionally reduced if you claim benefits before full retirement age if you continue to work and earn more than the yearly income limit. Surprised? The numbers say that if you earn more than $16,920 in this year, you will lose $1 in benefits for every $2 you earn over the limit.
If you want to get your full Social Security benefit, you will have to wait until your full retirement age to finally claim it – that is 66 years of age if you are born 1943 – 1954. The full retirement age increases by two months for every birth year after 1954 up to 1960 and for us born after 1960 or in that year, the full retirement age is at 67.
Let’s face it – Social Security checks are already small to be additionally reduced out of ignorance, so you should wait for the payout as long as you can (ideally up until your 70th birthday) since that can increase the payout amount up to 8%.
What if your retirement is longer than expected?
If you knew how long you would live, you could plan everything in a perfect way but since you cannot predict your life in this way, you should prepare yourself for the longer retirement.
According to the Social Security Administration, an average man who reaches 65 today is supposed to live until the age of 84, and an average woman who today reaches 65 is supposed to live until the age of 86. This life expectancy can change in the years to come and, for some people, retirement can last 30 years or even longer. The Social Security Administration says that among 65-year-olds, 1 in 4 could live past 90 and 1 out of 10 is going to live past 95.
Your health issues could drain your retirement savings
There are always some unexpected costs we need to consider when retiring.
Over the years, we have realized that the healthcare costs are pretty unpredictable and in retirement, they can even come as a surprise, so be prepared for it.
According to Fidelity’s Retiree Health Care Cost Estimate, a 65-year-old couple who retired in 2016 will need $260,000 to cover health care costs during their whole retirement. But you should realize that the costs could be even higher by the time you retire.
It is now a well-known fact that healthcare costs are soaring two to three times greater than the inflation rate, so everyone has to have the reserves to pay for rising health care costs. Now, this may influence your decision about the age at which you decide to retire.
When you reach 65 years of age, you will be able to sign up for Medicare and you can choose to pay for Medicare Part A, which covers hospital stays, but what is obligatory is to pay a premium for Part B coverage for doctor’s visits. One more optional coverage is Part D, for prescription drugs or you could pay a Medigap plans to supplement Medicare coverage.
What if you couldn’t live on your own?
A lot of older people need constant medical care due to illness.
Has it ever crossed your mind that you might need a long-term care in your retirement due to your health issues? As the Department of Health and Human Services found, 70 percent of people in their 60s will need some form of a long-term care. Not all of the aspects of this care are health-related, maybe you will need some simple assistance with the usual activities of everyday life, like eating, dressing, or bathing. Do not be shy about it since you’re not alone.
According to Genworth’s survey, today in an assisted-living facility, the average costs are more than $43,000, and the average cost of a private nursing home room is more than $80,000 a year.
You could get a long-term-care insurance policy which can help you avoid going broke and paying for long-term care on your own. It’s important to note Medicare does not pay for long-term care and long-term-care policies typically cover the cost of care up to a daily limit in your home, nursing homes, assisted living facilities, Alzheimer’s facilities, and hospice care.
