6 Often Overlooked Retirement Concerns

6 Often Overlooked Retirement Concerns

Retirement planning is a multi-step process that evolves over time. To have a comfortable, secure, fun and fulfilling retirement, you have to build a nest egg robust enough to fund your retirement lifestyle. Pulling this off means coordinating multiple aspects that affect your retirement. So, even the most financially savvy investors can mistakenly overlook some pretty important pieces of the puzzle.

With this in mind, we’ve put together a quick list of six of the most overlooked retirement concerns we see when meeting with new clients who had previously been planning on their own.

#1: Healthcare Costs

It can be challenging to talk about, but considering your health and what it might look like in the future is one of the most overlooked aspects of retirement. Health insurance and medical expenses can become costly and should always be included in your financial planning process.

According to an estimate by Fidelity Investments, a 65-year-old couple retiring in 2022 can expect to spend an average of $315,000 in out-of-pocket medical expenses throughout their retirement, assuming both are enrolled in traditional Medicare which covers expenses like hospital stays, doctor visits, and lab tests. For single retirees, that estimate is $150,000 for men and $165,000 for women.

Even those who retire in good health should consider the implications of rising healthcare costs since an emergency can occur anytime, which can be pretty costly).

And before you think that healthier individuals don’t need to save as much for healthcare, the truth is, the healthier a person is, the more they’ll spend on retirement healthcare. They may not necessarily pay more annually, but over time those expenses will rack up due to a longer lifespan and additional years spent paying.

Regardless of your current health situation, it’s crucial to add healthcare costs to the foundation of your retirement plan. The younger you are, the more healthcare will cost over your lifetime due to inflation and rising healthcare costs.

#2: Elder Care Needs and End-of-Life Expenses 

Some aging adults diligently prepare for their future by purchasing long-term care insurance. But that’s different now, thanks to most carriers abandoning the business or raising premiums to absurd levels. That leaves more people self-insuring for those potential expenses.

One important mistake you don’t want to make is thinking that Medicare will kick in to cover long-term daily care. Did you know that the annual median cost of in-home care in 2020 was $54,912, and the median price for a private nursing home room was $105,850?

Thanks to advances in technology and public health, we’re living longer lives. But whether you live a long and healthy life or experience health concerns, you will likely need at least some long-term care. The reality is that long-term care is expensive, so it’s essential to include it in your vision now. Don’t forget to plan for end-of-life costs for funerals and burials as well

#3: Inflation and the Ability to Keep Up with Rising Consumer Prices 

By now, we’re all familiar with the effects of inflation. And because inflation can slowly decay your spending power, the longer you live, the bigger the issue it can become. As inflation rises, it reduces the purchasing power of your savings, which could, in turn, increase the cost of your future expenses. If your expenses exceed your planned income, you risk running out of money.

Failing to consider inflation can throw a major wrench into your long-term plans. For those just getting started and planning to retire in 30 years, $1 million may seem like a generous nest egg. Figuring a 3% annual inflation rate, that $1 million becomes just $411,987 (in 2022 dollars). It’s always important to consider how far your nest egg will stretch to account for inflation and the ever-rising price of goods and services.

#4: Underestimating the Amount of Income You’ll Need for Retirement

Eliminate confusion about how far your savings will go – great things rarely happen by chance. Ultimately, this will come down to how well you’ve prepared, how comfortable you are taking risks, and what your retirement income needs are.

Will your income sources suit your needs, or have you overestimated how much you’ll receive in retirement? Retirement income is usually made up of Social Security (but not until age 62), a pension (if you have one), and savings.

Also, be mindful of your market risk when considering your future income. It could be prudent to keep short term income needs out of the stock market to avoid risk of loss should the market depreciate during that timeframe.

If you’re worried about a possible income gap in retirement or are wondering if you have saved enough we can review your plan and adjust accordingly! To ensure confidence in your future, it’s crucial to have supplemental and reliable income sources to fill any gaps. 

#5: Taxes 

We can’t stress enough the importance of considering the tax implications of your retirement income. If you’re like most pre-retirees, you’ve spent much of your adult life accumulating retirement capital inside a 401(k) or IRA. While all that tax deferral seemed like a good idea at the time, it can create an unwanted tax burden in retirement when that income is taxed at ordinary income tax rates. That may be fine if you expect to be in a lower tax bracket, but who knows what the tax rates will be in five, ten, or fifteen years?

And don’t forget about required minimum distributions, or RMDs – the amount required by the IRS to be withdrawn each year, starting at the age of 72, whether you need the income or not. This income may push you into a higher tax bracket.

Please don’t neglect the tax implications of your income sources; instead, look to diversify them in retirement.

  • Convert tax-deferred assets into tax-free assets through a Roth IRA conversion. While income from a Roth IRA isn’t taxable and RMD rules don’t apply, you will have to pay taxes upon your conversion. But to control that burden, you can convert small portions over time.
  • Up your charitable donations – ’tis the season for giving, after all! Charitable contributions are tax-deductible as long as you itemize – keep track of your donation receipts. Charitable donations can also be used to fulfill RMD requirements if you don’t need the income.
  • To further lower your taxes, work with your financial and tax advisors to reduce your tax bill – the savings are out there – you just have to look for them.
#6: Complacency (possibly the most overlooked challenge to retirement)

Number six comes in as the challenge that is possibly the most overlooked. While all of the previous concerns are very real, with a proper plan, most of them can be remedied.

We pride ourselves on providing the tools and resources that make our clients feel empowered and confident about their futures. All too often, the line between confidence and pride can become blurred… and too much pride can lead to complacency.

Confidence in your retirement savings can frequently lead to a lack of proper retirement planning. That’s right, some people forget to follow through with the planning part, thinking they’ve done their due diligence on the saving part. But pre-retirees must understand the importance of converting their savings into lasting income.

Conversely, complacency often stems from fear and the fear of making a mistake. For some people, that turns into the idea that doing nothing feels safer than making a decision. Unfortunately, failing to decide on your long-term savings plan can bear the same negative results as making the wrong decision! With a proactive and well-designed plan, you can avoid making a flurry of reactive choices.

So, is your retirement plan ready for the challenges it may face?

Whether you care to deal with them or not, you can’t ignore the struggles that could be possible in retirement. Simply refusing to plan for them won’t eradicate them. That’s because a successful, fulfilling retirement is built on the foundation of a plan and action.

How prepared are you for retirement? At Uncommon Cents Investing, our management services ensure that you’ll make the most of your opportunities and overcome obstacles so you can feel secure and optimistic that your wishes will turn into lifelong attainable goals.


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More About the Author: Sheena Hanson

Sheena is a highly regarded financial professional known for her clear explanations and practical advice on complex financial matters. She earned her CERTIFIED FINANCIAL PLANNER™️ designation in 2010 and holds a Bachelor of Science degree in Finance from the University of Wisconsin LaCrosse.