Retirement Reality Check: The Cost Of Inaction

Failing to invest in your retirement can have serious consequences, from working until you die to leaving your family with financial and emotional stress. Not having enough money for retirement will be a reality for many Americans, with around 45% of working-age households having no retirement savings.

The results of inadequate retirement savings are not always disastrous, but they are almost always sad. For example, you may have to continue working well into your later years, or you may have to rely on your children for financial support. In addition, not investing in stocks during retirement can limit your portfolio's ability to grow, which may force you to limit your withdrawals and leave you with less disposable income.

Therefore, it is crucial to craft a careful retirement plan and seek advice from financial advisors to ensure you are making the most of your investments and savings.

You may have to work until you die

Not investing for retirement can have serious consequences. While it may not always be disastrous, it can kill dreams and force you to make serious adjustments to your lifestyle. For many, it means having to work until they die.

John's Story

John, a client of financial advisor Tom Diem of Diem Wealth Management, serves as a cautionary tale. Despite his financial advisor's warnings, John continued to withdraw $2,000 per month from his $400,000 balance during his fifties. He believed that his business would improve and that everything would work out. While the accounts were growing slightly, the crash eventually came, leaving John with significantly lower balances. Now well into his sixties, John has taken on a full-time job when he should be planning his retirement.

The Importance of a Financial Plan

Crafting a careful financial plan and sticking to it is crucial for a comfortable retirement. This includes maximising the advantages of a workplace retirement plan and taking advantage of an IRA. It is also essential to seek competent financial advice to ensure you are making the most of your savings and investments.

The Impact of Not Investing

Not investing in stocks during retirement can limit your portfolio's ability to grow, forcing you to limit your withdrawals and leaving you with less income. While it is generally recommended to move away from stocks as retirement nears, completely eliminating them from your portfolio can stunt the growth of your savings.

Striking a balance between stocks and safer investments, such as bonds, is key. By maintaining some stocks in your portfolio, you can continue to generate growth and have access to a robust income stream to cover your expenses.

You may drown in debt

Not saving for retirement can lead to a life of debt, and you may find yourself borrowing money to make ends meet. This can result in a vicious cycle of debt that becomes increasingly difficult to escape.

Credit Card Debt

The temptation to spend on credit cards can be hard to resist, and many people fall into the trap of spending what they cannot afford. Credit cards often come with high interest rates, and the debt can quickly spiral out of control. The stress of credit card debt can be overwhelming, and it can affect your physical and mental health.

Loans

Taking out loans to cover expenses can also lead to a cycle of debt. Personal loans, car loans, and student loans can have high interest rates, and the repayments can be a significant burden. It is important to understand the terms and conditions of any loan before signing up, as the long-term impact on your finances can be significant.

Debt in Retirement

If you enter retirement with existing debt, it can be challenging to manage on a fixed income. This may lead to a reduced quality of life and the inability to cover basic living expenses. It is crucial to prioritize debt repayment and seek help if needed to ensure a secure financial future.

Impact on Family

Debt can also have a significant impact on your family. They may need to provide financial support or even accommodate you if your financial situation deteriorates. This can cause emotional stress and strain relationships.

Planning for the Future

Failing to save for retirement can result in a constant worry about the future. It may force you to make difficult choices, such as selling your home or delaying retirement. By planning and investing wisely, you can avoid these challenges and look forward to a secure and comfortable retirement.

Your family may suffer financial and emotional stress

Retirement is a major life change that can bring stress and depression, and it can affect your family as well. If you haven't saved enough for retirement, you may have to rely on your family for financial support, which can cause stress and resentment.

For example, if you need to move in with your adult child to afford your bills, it can be a burden on your child and cause resentment. Or, if your children have to support you in your old age, it can be a financial strain on them and change their lifestyle.

Not having enough money for retirement can also affect your spouse or partner. They may have to continue working to support you both, or they may suffer emotional stress due to limited cash and financial pressures.

In addition, if you have to keep working until you die because you don't have enough savings, it can affect your family. They may have to care for you in your old age, or they may have to bury you if you die prematurely because you couldn't afford to retire.

Not saving enough for retirement can also kill your dreams. For example, if you wanted to travel the world during retirement but have to stay home because you can't afford it, it can be disappointing for you and your family.

How to reduce the stress on your family

There are several ways to reduce the financial and emotional stress on your family due to your retirement:

• Save for retirement: The best way to reduce stress on your family is to save enough for retirement so that you don't have to rely on them financially. This may involve contributing to a retirement plan, such as a 401(k) or IRA, or investing in stocks or other investments.
• Get a part-time job: If you're retired but still able to work, consider getting a part-time job to supplement your income and reduce the financial burden on your family.
• Volunteer: Volunteering can add meaning and purpose to your life and benefit your community. It can also help expand your social network and improve your mental health.
• Stay socially connected: Maintaining social connections can improve your mental health and reduce feelings of isolation. Join clubs or teams, take classes, or find other ways to meet people and stay connected.
• Manage stress and anxiety: Retirement can be stressful, but there are healthy ways to cope, such as practicing relaxation techniques, getting regular exercise, and spending time in nature.

You may have to rely on your children for support

If you don't invest in your retirement, you may have to rely on your children for support. This can happen if you don't save enough for retirement or if you spend your savings early on in your retirement. This can put a strain on your children, who may have to support you financially and make adjustments to their own lifestyle and retirement plans.

In some cases, your children may even have to take you into their homes and provide for your daily needs. This can be a burden, especially if your children are still paying off their own debts or trying to save for their own futures. It can also cause resentment and put a strain on your relationship with them.

Even if your children can afford to support you, it can still be a source of stress and anxiety for them. They may worry about being able to provide for your financial needs, on top of their own. This can impact their career and future financial security, especially if they have to cut back on work to care for you.

The strain of supporting ageing parents can also fall on adult grandchildren if their parents are unable to do so. This can be particularly challenging for those in middle- and lower-socioeconomic classes, who may already be struggling financially.

To avoid putting this burden on your children, it's important to prioritise your retirement savings and make a plan for your future. This may include investing in stocks, taking advantage of tax breaks, and seeking advice from a financial advisor. By ensuring your own financial security, you can maintain your independence and avoid becoming a burden on your family.

You may have to sell your home

Retirement can be an exciting time, but it can also be a stressful one, especially if you haven't adequately prepared for it financially. One of the biggest decisions you may have to make is whether to sell your home. This can be a difficult choice, as your home may hold a lot of sentimental value, but it can also be a necessary one to ensure your financial security during retirement. Here are some reasons why you may need to sell your home when you retire:

Financial Security

One of the main reasons people choose to sell their homes in retirement is to boost their financial security. If you're worried about having enough money to last you through your retirement, selling your home could provide a much-needed influx of cash. This is especially true if your home has increased in value over the years or if you've paid off a significant portion of your mortgage. You can use the proceeds from the sale to buy a smaller, more affordable home and invest the rest to boost your retirement savings. Even if you don't have a lot of equity in your home, selling can help lower your housing costs and free up money for other expenses.

Mortgage Concerns

Ideally, you would have paid off your mortgage by the time you retire. However, if you still owe a substantial amount, you may not want to commit a large portion of your retirement income to mortgage payments. In this case, downsizing to a smaller property with a lower mortgage balance and monthly payments can be a smart financial move. This will free up cash that you would otherwise spend on interest, giving you more money to spend on other retirement expenses.

High Property Taxes

Property taxes can be a significant expense, and they tend to increase over time. If you're facing high property taxes, selling your home and moving to an area with lower taxes can help reduce your overall housing costs and free up money in your monthly budget. As a retiree, you may also be able to take advantage of property tax exemptions or discounts specifically for seniors.

Maintenance and Repair Costs

As a homeowner, you're responsible for all maintenance and repair costs, which can become a financial and physical burden as you get older. Selling your home and renting can relieve you of this burden, as your landlord will typically be responsible for maintenance and repairs. This can give you greater peace of mind and free up money for other expenses.

Downsizing and Relocation

As you approach retirement, you may find that you no longer need as much space, especially if you have adult children who have moved out. Downsizing to a smaller home can reduce your overall living expenses and give you a chance to "clean house" and get rid of items you no longer need. Retirement is also a great time to relocate, whether it's to be closer to family, to fulfil a long-held dream of living in a new place, or simply to enjoy a change of scenery. Selling your home gives you the flexibility to explore different options without being tied down.

Emotional and Sentimental Factors

While selling your home can be a difficult decision, it's important to consider not just the financial implications but also your emotional and sentimental attachment to the property. If you have strong emotional ties to your home, the prospect of selling can be daunting. However, it's important to weigh these feelings against the potential benefits of selling, such as increased financial security and the opportunity to live a retirement lifestyle that better aligns with your dreams and aspirations.

Frequently asked questions