You're Running Out of Time to Prepare for a Historic Retirement Crisis
Editor's note: Retirement expenses can add up fast...
Most folks expect to spend less money when they leave the workforce. But according to Income Intelligence editor Dr. David "Doc" Eifrig, all that newfound free time comes at a cost – often thousands of dollars more than you bargained for. And there's another factor many people aren't considering...
Put simply, planning for retirement is harder than it used to be. These days, folks are still saving for retirement using the same strategies that have worked for decades. But Doc says those methods aren't cutting it anymore... and they could be disastrous for your retirement account.
Today's Masters Series is a combination of the June 23 and July 2 issues of Doc's free Health & Wealth Bulletin e-letter. In this essay, he reveals why retirees often exceed their budgets... explains how to prepare for unexpected costs... and details what the end of the bull market could mean for your savings...
You're Running Out of Time to Prepare for a Historic Retirement Crisis
It always amazes me when folks vastly underestimate just how much they will spend in retirement.
I'm placing an emphasis on "vastly" because it's not by $10 or so every month. It's much more. I'm talking potentially hundreds of dollars or more a month.
And if you don't have enough saved, this overspending can ruin the rest of your retirement. I've seen it too many times... new retirees burn through a good chunk of their nest eggs in just a few years.
It puts so much more stress on your golden years – when you should be enjoying them.
Even the best budgeters and Excel sheet wizards fail to estimate the true cost of retirement. That's especially true in the first few years after leaving the workforce.
Most folks think that expenses will go down significantly in retirement. They don't have to commute to work, which will cut down on the gasoline bill... There are no business lunches or new clothes to buy for work... Maybe they downsize or pay off their mortgage... And the kids are out of the house, so no one is nagging them for spending money.
All of that may be true...
But most folks fail to realize how much extra time they will have once they retire. And what do most retirees do with their newfound freedom?
Spend.
They travel, go out to restaurants, start new home projects... you name it. There's only so much sitting on the couch you can take.
According to the international travel agency network Virtuoso, the average retiree spends $11,077 a year on travel. That's a lot, considering half of all Americans aged 65 and older bring in less than $27,398 in yearly income.
The table below looks at how much you should prepare to save for different things in your retirement. Keep this in mind as you plan your projected expenses...
Of course, not everyone will have all of these expenses. But you can see how a few vacations a year, a home renovation, contributing to a child's wedding, or a new set of wheels after your 20-year-old car suddenly dies can add up.
Then you also have to consider higher medical costs. As you age, you tend to need more medical care. And the cost of that medical care keeps shooting up...
Fidelity estimates that an average retired couple needs approximately $300,000 saved after taxes to cover health care expenses in retirement. And that's an increase of about 4% from a year ago.
Getting old gets expensive. You need to make sure you're able to afford everything that comes along with retirement.
Because there are so many unforeseen costs when you retire, I can't stress enough the importance of a rainy-day fund. Every retiree needs one. Trust me... there will always be unexpected costs, and you will likely have to spend more than you planned for in retirement.
As a general rule, you should always have about three to six months' worth of expenses in cash.
While you can budget out everything – from how many vacations you take per year to how many times you eat out – expenses will always pop up that you just weren't expecting. You have to be prepared for those and have enough money saved.
If you're getting close to your retirement age or are already retired, I want you to be able to be comfortable... and be able to do the things you want to do.
I want you to be financially stable.
And to do that, you have to make your money work for you. You have to be generating a return on your portfolio... and that's scary today with all the threats to the stock and bond market. There's an overvalued stock market, inflation, and historically low bond yields.
You see, not too many years ago, it was easy to navigate financial independence in retirement.
And while advisers and brokers tried to make retirement planning look complex, you just needed to put some money in stocks and some money in bonds, and keep your wealth there for the long haul.
Nearly everybody did it. It was the easiest lesson in finance.
It was simple... and dead right.
For decades, getting a good return on your money in the market seemed easy. You could just buy an index fund and watch it return 6% to 10% per year.
But if you're retired now – or if you plan to retire in the next 10 or 20 years – that's not going to work for you anymore.
In fact, it has become a downright dangerous strategy. And if you're retired and living off your savings, or plan to retire shortly, this puts your nest egg in jeopardy.
Lots of folks like to think that this bull market will continue on the way it has for more than a decade. That's just not what the data tell us.
Instead, this period of extraordinary growth is simply coming to an end – just as it has time and time again throughout history.
We know what comes next in this historical cycle.
And the signs are telling us to prepare for a decade of zero to negative returns in things like index funds for the market.
It's time to get defensive... and put your money in the right assets today. You have a short window of time to safeguard your wealth before the greatest retirement crisis in history unfolds.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Doc says the strategies investors have been using for decades to prepare for retirement aren't enough anymore... and worse, they could be putting your nest egg in danger. That's why he recently exposed a big lie that could mean a difference of millions of dollars for your retirement...
It's the culmination of all of Doc's years on Wall Street, in medicine, and working on behalf of the American retiree. He believes what he revealed has the potential to improve – and possibly even save – the retirements of thousands of people... hopefully including you. Click here to get the details.