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All the Things That Happen When You Can’t Save for Retirement
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Retirement – is it a destination that is on the horizon or does it feel like it is still decades away? Either way, it’s important to make sure you have enough current savingsget some passive income and a few other financial matters in order before you quit your job for good.
Not adequately preparing for retirement can land you in trouble if you’re over 65, have nothing in your savings account, and rely solely on Social Security to get you through your golden years.
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Kevin Huffman, owner of Criminal Negotiationcited research from the National Endowment for Retirement Security, which stated that 45% of all retirees say they do not have enough money to live comfortably.
“Put another way, many retirees have difficulty affording everyday things — from basic household items to housing and health care,” Huffman said. “In the long term, the damage could be even greater. Social Security does not provide a standard of living close to what a person enjoyed before retirement. The average Social Security benefit only provides about 40% of pre-retirement income.”
GOBankingRates caught up with Huffman and a few other financial planners to discuss the consequences of not saving for retirement.
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You may have retired from your career but may need money for basic expenses cost of living – and that means you’ll have to go back to work somehow.
Individuals who do not adequately prepare their finances for retirement “may need to delay retirement or continue working beyond retirement age,” said Doug Roller, founder of Encruzilhada Financial Group.
“Most people who can work will need to continue working full-time or part-time,” agreed Stephen Kates, chief financial analyst at Annuidade.org.
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Assets need to be sold
If retirees over 65 are unable to return to work, “they may have to turn to other sources of income, such as selling assets, taking out loans or receiving assistance from government programs,” Roller noted. “These options can bring their own set of challenges and potential shortcomings.”
“Selling assets, for example, can result in the loss of potential future growth or the payment of capital gains taxes. Borrowing money can lead to high-interest debt that is difficult to pay off,” Roller added.
Medical Expenses May Be Bankrupt
As we age, we need more care and attention to our health. After retirement, you may qualify for Medicare to cover the cost of your medical expenses, but it is not a comprehensive solution. If you don’t have some type of financial support for unexpected healthcare costs, you could end up broke or saddled with debt from medical bills.
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“Medicare helps, but it doesn’t cover long-term care. Medicaid covers long-term care, but only after you have used up your assets and income—that is, you have to be broke,” explained Jay Zigmont, founder of Wealth without children.
“Long-term care costs an average of $115,000 per year, and men use 2.2 years of care and women 3.7. If you don’t have a long-term care plan, you’re going to have to go broke and rely on Medicaid, which tends not to be the best treatment,” Zigmont said.
Falls in standard of living
If you need to return to work, you won’t have time to relax, see your family, or do the things you looked forward to in retirement. If you need to downsize your home, you could find yourself in an awkward situation that you didn’t plan for post-work.
“Seniors may have difficulty maintaining their standard of living and may have to make significant cuts to their expenses,” Roller said. “Not saving for retirement can lead to increased stress and anxiety about your financial situation, which can negatively impact your physical and mental 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 pay for your housing, medications or other essentials,” he noted. Kates.
Tips for planning retirement
If all of these potential retirement outcomes without proper planning are sending a shiver down your spine, don’t 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,” recommended Kates. “Any amount of money that can be set aside for emergencies can provide much-needed financial security in retirement.”
“It is important to postpone Social Security as late as possible, ideally until the age of 70, when benefits will reach their maximum value”, he advised.
He pointed out that living off Social Security alone leaves you in an inflexible situation, with little financial cushion for emergencies and unexpected expenses. “Without one emergency fund or other assets you can rely on, any unexpected expense could put you in debt or make you have to choose between paying for necessities.”
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This article originally appeared on GOBankingRates. with: Financial Planners: All the Things That Happen When You Can’t Save for Retirement