Financial and Lifestyle Concerns of Retirees

I recently attended several programs geared for older adults and read several books about living in retirement. Below are some key takeaways:

Common Fears- Many surveys indicate that the #1 fear of retirees is running out of money during their lifetime. Other frequently cited fears are health care expenses, long-term care expenses (e.g., assisted living and/or skilled nursing care), steep stock market declines, death of a spouse and a subsequent loss of spousal income, the financial needs of adult children and grandchildren, and inflation.

Tax Concerns- Some retirees, especially those who were diligent savers during their working years, wind up in a higher tax bracket in retirement than they were in during their primary careers. Reasons include required minimum distributions (RMDs) from tax-deferred retirement savings accounts and fewer tax write-offs such as mortgage interest. Taxes are exacerbated when one spouse in a couple dies, and the survivor must file taxes as an individual. This may trigger tax on Social Security, Medicare IRMAA tax, and other income-based taxes.

Tax Diversification- Ideally, retirees should have assets in three different “buckets” that are taxed differently: taxable investment accounts, tax-free investments (e.g., Roth accounts and municipal bonds), and tax-deferred retirement savings accounts (e.g., traditional RIRAs and 401(k)s). Having just tax-deferred accounts that postpone taxes to the future can be an expensive “tax bomb” that explodes in later life.

Present Bias- A common error of younger retirees is thinking that their life will always look the way it does today (i.e., their health and ability to do things). Sixty-year olds have a difficult time, for example, picturing themselves in their 80s and 90s. This is understandable because nobody wants to picture themselves in decline or having physical limitations. Financial experts advise living for today but planning for tomorrow.

Hybrid Insurance Plans- Many people are hesitant to purchase long-term care insurance (LTCI) because it can be difficult to find, is expensive (especially after age 60), and they may not need it. This has led to the availability of life insurance with a chronic illness rider. If someone doesn’t use the LTCI benefit, the life insurance benefit goes to a named beneficiary. Some people use RMD withdrawals to pay for a LTCI policy.

Sobering Statistics- One program speaker noted that 43% of baby boomers may not be able to afford basic living expenses throughout the duration of their retirement. Women, especially, are at risk due to lower average lifetime earnings than men and more gaps in their work history due to caregiving. When people are forced to make financial decisions out of desperation, their options are limited.

Work in Retirement- To quote Joe Casey, author of Win the Retirement Game, “many people discover that their money is better prepared for retirement than they are.” Retirement used to be viewed as a period of withdrawal and decline. It is now viewed by many as a period of renewal, engagement, meaningful pursuits, and personal growth and often includes some form of paid or unpaid work. For some people, “kicking back” and relaxing is not enough. They want to do things that have meaning and purpose.

Physical Health- When people leave a full-time job, they are “time-rich” and have approximately 2,500 hours of free time (50 hours a week for work and commuting x 50 weeks). This provides an opportunity to prepare healthy meals, get needed health screening tests, and engage in regular physical activity. More than 2023 years ago, the poet Virgil noted that “the greatest wealth is health.”

Skill Repurposing- Many retirees gradually figure out how to replace things they got from work beyond a paycheck (e.g., social connections, creativity, sense of purpose). Retirement does not necessarily mean abandoning everything  you used to do- but, rather, repurposing contacts, skills, and experiences in new ways. “Identity bridging” is the process of carrying over some parts of pre-retirement life into retirement while disengaging from others. It is important to have a “growth mindset.

In summary, to enjoy your years in later life, take care of your mental, physical, and fiscal health. For more information about happiness and financial security in later life, read my book, Flipping a Switch.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.