Preserving Your Wealth: Sealing Financial Leaks in Retirement
The top five money leaks in retirement and how to plug them, from healthcare costs to inflation planning and advisor fees.
By Ned Small · Stewardship
Top 5 money leaks within retirement and how to plug them!
Are you dreaming of a worry-free retirement?
Time filled with travel, leisure, passion projects and cherished moments with loved ones?
Retirement is a time to savor the fruits of your labor. This is why it's crucial to navigate potential financial pitfalls.
Imagine the peace of mind that comes with knowing your hard-earned savings will last you as long as you need? Being put to good use, just as you intended.
In this guide, we'll uncover the Top Five money leaks retirees often overlook. Once identified, we will install practical strategies to help you plug them. Mastering these strategies will curb stress, give you confidence and help secure your financial future for years to come.
Healthcare Costs. Health is wealth and healthcare costs can take a big bite out of your retirement savings. One way to save might be to consider purchasing supplemental insurance. Programs like Medicare Advantage or Medigap can help cover out-of-pocket expenses. Best to do your due diligence as not all plans are created equal. Pick a plan that works best for your unique needs. Long-term care insurance is an option as well. Remember that the earlier in life you buy LTCI the better. It might not be worth purchasing once retirement comes. You should always weigh the pros and cons to see if it's a good fit. The best way to combat these costs is through preventative measures. An ounce of prevention truly is worth a pound of cure. Maintaining a healthy lifestyle is paramount. Regular exercise and proper nutrition may help prevent costly future health conditions. Lifestyle choices often determine both the physical and mental, chronic conditions we may end up with. To give you an example of the environment we find ourselves in today: The current median cost (within the U.S.) of 24/7 in-home care is $18,250 per month. Assisted living is $6,000-$15,000 per month, based on services needed. The added on "extras" will get costly quick! Lastly, a nursing facility typically costs $8,000-$9,000 per month. Trying to find a suitable one is the catch. With two decades in elder care and recently volunteering as an ombudsman, I can tell you, I have seen some BAD facilities. So, how do you avoid being in this position altogether? By being honest with yourself and loved ones. The current cost of care is why complete financial transparency with your partner and/or children is imperative. In an emergency situation, no one likes to be caught off guard. I have seen many avoidable, catastrophic, financial implosions happen to good people. Catastrophes that might have been avoided, had the affected simply been honest about their finances, feelings and wishes. This is why we encourage all of our clients to consider creating a living will, if they don't already have one. This ensures you get the type of care you need, when you need it. It is better for both your loved ones and yourself, if they don't have to guess your preferences for care. It will save you all a lot of time second guessing and the guilt that inevitably comes from it.
Unnecessary Subscriptions and Services. Are you still paying for services you no longer use? Popular apps such as Rocket Money, Mint and Copilot can help you get ahead of these. Self-audits, going through your credit card or bank statements works just fine as well. Some of the larger leaks I've seen with clients have been with cable companies and wine clubs. One client was paying close to $600 for cable tv! Another was spending $2500 on monthly wine club subscriptions, unbeknownst to them! Make it a habit to review your expenses regularly to avoid paying for things you don't need. This coincides with the above statements about financial transparency as well. Lets say something tragic unfortunately happens. Will your partner or children know how to access or cancel your subscriptions? This can be a painstaking process and it's usually the last thing anyone wants to be thinking about during these times.
High Living Expenses. Retirement is a time to relax and enjoy life. However, enjoyment can quickly lead to peril if we forgo keeping a budget. Budgeting never stops, especially on a fixed/semi-fixed income. This is especially true for those who have lived most of their lives with lifestyle-creep. Overspending in retirement can deplete your savings fast. On top of that, a tragic, unforeseen event could do the same in an instant! Create a budget that prioritizes essential expenses and emergency savings, while also allowing room for leisure activities and creative projects. Something to consider might be downsizing to a smaller home. A large, older home will cost you more and more as time goes on. Maintenance can be exhausting and take up time better spent. Owners of historic homes please be extra aware. Having to spend $200,000 on a replacement slate roof is never on anyone's retirement bingo card! With interest rates at incredible highs, opting to rent could save you lots of money and time-intensive labor as well. Moving to a neighborhood with a high walkability score can be beneficial in many ways as well. You could reduce the number of vehicles you own to cut down on housing and transportation costs. Walking or biking into town can have a positive outcome on your health. This may also help feelings of isolation. We as humans crave connection. The closer we are to our neighbors, the better likelihood of us being involved with our communities. This feeling of belonging and purpose will add years to your life! Always look for ways to save money, without sacrificing your quality of living.
Poor Investment Choices or High Fees. Investing is essential for building wealth in retirement, but you must make smart choices. Avoid high-fee investment products that eat away at your returns over time. Stay on top of your investment portfolio. Don't forget that your annual, required, minimum distribution starts at age 72.5. There can be hefty fines involved when you miss it. You may also want to look into the qualified, charitable donation option when paying taxes on your RMD. Note, this deduction is only available through IRA's and not employer-sponsored plans. Consider seeking advice from a trusted financial advisor. They can help ensure your investments align with your retirement goals. If you have a larger portfolio, it maybe more sustainable to go with a fee-based advisor. Paying an advisor 1-1.3% of your annual compounding interest adds up fast!
Inflation. Don't let inflation sneak up on you and erode your purchasing power in retirement. Is 2024 not a perfect example of what can happen? Already this year Americans are spending 450 more dollars, each month, compared to last year. This is on the same products and services purchased in 2023! Plan for inflation by investing in assets that offer inflation-adjusted returns. Index funds and real estate would be two historical examples. Again, always do your own research and go with what suits you best. Ultimately, it's up to you. You are the only one to insure your retirement savings will last longer and provide for your needs in the years to come.
A few final words. Being aware of money leaks and taking steps to avoid them will make retirement much less stressful. How do we do that again?
*By managing healthcare costs and living a healthy lifestyle.
*Making smart investment choices, and proper planning for inflation.
Taking these steps now will make a significant, positive outcome for your future. By protecting your retirement savings, you secure your ability to live comfortably well into your golden years. Just as you deserve!