Retirement should be a time to relax and indulge in personal pursuits. Unfortunately, many seniors haven’t saved enough, and their retirement years may be marked by financial worry and instability.
Despite all the preparation possible, you might discover that your retirement is going to cost more than you planned.
If you’re worrying about whether you’ll have enough saved for retirement, read these seven signs that you might not be saving enough.
You don’t have a long-term care plan
If you happen to need long-term care during retirement but haven’t budgeted for it, you could be in for a shock.
How much you pay for aged care services depends on:
- the type of help you need
- the provider you choose
- your financial situation
- the services you receive.
Research shows that more than half of adults turning 65 today will need long-term care and about 1 in 7 will need care for more than five years.
Different providers have different charges, and there are various costs and fees for each type of care. So, it’s important to understand how all the costs and fees work together and how to compare provider costs. This will help you choose the provider that works best for your budget and care needs.
Read: Is adjusting to retirement easier for men or women?
What to do
If you’re worried that you may not be able to afford your home care, residential respite care or permanent residential care costs, you can ask to be considered for financial hardship assistance. If you are eligible, the Australian Government will pay some, or all, of your aged care costs.
You underestimated your life expectancy
People are living longer and longer, and your retirement could end up being more expensive than you thought if you live a lot longer than you expected you would.
Men aged 65 in 2018–2020 could expect to live another 20.3 years (an expected age at death of 85.3 years), and women aged 65 in 2018–2020 could expect to live another 23 years (an expected age at death of 88 years).
If you save enough to cover expenses for 20 years in retirement but end up living for 30 years in retirement, you’ll have to find a way to stretch your savings for another 10 years.
What to do
Try using a life expectancy calculator to get an estimate of how long you will live based on your current age.
To reduce the risk of outliving your savings, you shouldn’t rely on just one source of income in retirement. A portfolio of diversified investments will put you in a good place financially rather than keeping all of your money in one place.
Of course, life expectancies are based in part on averages. So, some people won’t reach their life expectancy, and others will live beyond it. Probably best to add a few years to be on the safe side.
You didn’t take inflation into consideration
You might not feel the impact of inflation so much while you’re working if your wages are rising along with the price of goods and services. So, it’s easy to forget to factor inflation into your retirement savings calculations.
The inflation rate for consumer prices in Australia moved over the past 61 years between -0.3 per cent and 15.4 per cent. During the observation period from 1960 to 2021, the average inflation rate was 4.7 per cent per year.
What to do
If you didn’t factor inflation into your retirement calculations, you might have to save more than previously projected.
Spend some time re-calculating how much you’ll need to last through your retirement, factoring in average inflation each year.
Read: New retirement income tool aimed at helping you save
You didn’t factor in big-ticket items
Creating a retirement budget to estimate your expenses and pinpoint an accurate number will tell you how much income you’ll need to cover them all.
It’s worth remembering that you may need to fork out for some big-ticket items such as home repairs or a new car. Try to incorporate a little wiggle room in your budget so you have the resources to cover large expenses if they come up.
What to do
Make a list of big-ticket items you’ll likely need to pay for in retirement and an estimate of how much they’ll cost, then build an emergency fund in a savings account that’s big enough to cover those expenses.
Your spending habits have changed
Another reason your budget projections may be off is if your spending habits change over time.
You might be all about saving every cent now, but that could change. Many people end up spending more money in retirement due to shopping and eating out becoming their main ways of staying social.
What to do
Look for free and low-cost ways to stay active and connected with others in retirement. Research book clubs in your area or volunteer in the community. These things cost nothing but provide a lot of interaction and social stimulation.
There are plenty of other free ways to stay busy after retirement. You can take walks or hike, research your family’s history or take advantage of free community events.
You loaned money to your children or other family members
If you don’t put a hard limit on what you can realistically loan to your family members, you could be forced to keep working for longer. It’s difficult to say no to people but if you are going to help them out, you must do so judiciously.
What to do
Creating a solid financial plan for retirement will help you understand the risks of raiding your savings to help your family.
Your retirement security depends on the balance you create between your retirement income, assets and spending. If you spend down your assets by loaning them to people, you might not have sufficient assets to create the income you need to stay retired.
Without a plan, you’ll have trouble establishing boundaries when it comes to your family’s requests for money.
Read: The bumps that could crash your retirement
You take on new debt
Ideally, all debts, including your mortgage, will be paid off before you retire. Taking on new debt in retirement by living beyond your means is a recipe for disaster.
What to do
If you take on new debt in retirement, be sure you are taking proactive steps to pay it down as soon as possible. One option is to refinance if lower interest rates are available.
Another option is debt consolidation, which can be useful if you have multiple high-interest-rate debts. You should also try cutting down on spending to have more money to dedicate to paying down debt and should consider taking some part-time work to bring in income that can be used specifically for paying off your debts.
How secure are you in your retirement savings? Is there anything you wish you’d done differently? Let us know in the comments section below.
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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
