You may be carefully planning a comfortable retirement, but unexpected changes can upset it. For example, if you think it would be a good idea to prepare for an upcoming recession, you might want to think about your retirement plans before handing in your resignation letter.
And even if nothing big happens in the market, do you have enough savings for daily expenses? Can you handle an emergency or an unpredictable cost? And what about your investments?
Whether you’re retiring now or planning to be in a few years, here are some things to consider that could pose major threats to your retirement.
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1. Overspending
Retirement could mean fun changes like having more time to travel, dining out regularly, or buying that car or boat you’ve always dreamed of. But there is a difference between overspending and overspending.
If you’re buying too many big-ticket items on a fixed retirement budget, you might be surprised when your funds start to run out after just a few years, which could force you to find ways to earn extra money.
2. No emergency fund
You never know what kind of obstacles may be thrown your way during your retreat. Maybe you have an unexpected medical emergency or car repair. You may have issues with your home that require immediate attention.
Just as an emergency fund should be part of your working life, it should also be part of your retirement plan. You don’t want to have to rely on credit cards for emergencies.
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3.Inflation
In times of high inflation, your retirement funds may not buy as much as they used to. Groceries and gas might cost more. Housing costs for seniors may increase. Travel and entertainment prices may increase.
While your living expenses will likely be lower when you actually retire, you still need to create some reserve in your retirement budget so you can prepare for inflation.
Pro Tip: You may want to find an online retirement calculator to help you calculate the effect of inflation on your retirement, depending on how long you plan to stop working.
4. Medical expenses
Even if you are healthy now, you can develop problems as you get older. A recent report by Fidelity suggested that retirees should budget 15% of their annual expenses for medical expenses. This includes health insurance premiums and personal expenses.
Factor these potential costs into your retirement plans. You can also invest in long term care insurance to offset some of the costs.
5. Investing too cautiously
As you continue to work and build your retirement savings, you may want to invest in stocks and funds that can generate high returns for your 401(k) plan. But as you approach retirement, you can be wary of too much risk and start investing in safer assets.
However, investing too conservatively and putting too much of your retirement savings in cash could backfire. Even if you think you are safe from a stock market loss, you may be missing out on gains and opportunities to boost your bank account.
6. Risky investments
On the other hand, as you get older, you also don’t want to embark on risky investments that could wipe out some of your retirement savings just before you hand in your resignation letter.
Instead, regularly assess your retirement portfolio and rebalance it from risky to more conservative investments as you age.
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7. Your current budget
Do you stick to a budget each month? Otherwise, you could face a serious threat when it comes time to retire.
Consider how much you spend each month and how much you can potentially save on vehicles like a 401(k) account. Don’t forget to put money aside in a savings account for emergency use.
8. Your future budget
As you sit down to create a budget for your current needs, it may also be a good idea to budget for your retirement needs.
Consider things like housing costs, including utilities, as well as optional expenses like travel, events and recreation, or dining out. And don’t forget to include medical expenses in your monthly budget.
Pro tip: If the thought of budgeting is stressing you out, best budgeting apps can make it easy and even fun.
9. Dependents
You may have a parent you are currently caring for or children who may be heading off to college soon. Although you may want to help them pay for medical issues or school fees, try to pay yourself first.
If you’re incurring additional expenses because of your dependents, be sure to factor that into your retirement budget.
10. Your work
Yes, your job could be a threat to your retirement. If you’re tired of living paycheck to paycheck or don’t have an employer-sponsored retirement account, this could affect how much you can save for your retirement.
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And remember, it’s okay to love your job too. If you like to work and you don’t plan to retire soon, factor that into your calculations, especially when it comes to when you want to start collecting your Social Security benefits.
11. Pension contributions
How much do you put into your retirement account each month? Leverage employer matching funds by maximizing your personal contributions from your regular paychecks if you can.
If you’re saving extra money for retirement, talk to a financial advisor or research the best way to put that money to work to prepare for retirement.
12. Debt
Debt can be a heavy burden to bear in retirement. When calculating your debt, remember to include credit cards as well as loans for your home or car.
You may also want to search ways to crush your debt now so you don’t have to worry about post-retirement debt.
13. Cost of living
It might sound nice to retire on the beach in Miami or in a bustling city like New York, Chicago or Los Angeles. But these glamorous neighborhoods may be hiding a shocking surprise: the cost of living.
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Living in a place with a high cost of living could eat into your retirement savings quickly, so consider finding a home that might be more affordable in the long run. You can always visit high cost of living areas before returning to your reasonably priced home.
14. Problems with social security
You’ve contributed to social security during your career, but there may not be as much for you when you retire. Just in case, you might consider ways to supplement your social security income so you’re ready when you retire.
And remember that the amount of your monthly Social Security benefits depends on the age at which you decide to start taking them.
15. Bear Market
Preparing for a recession or predicting when it might start is not easy. Bear markets can occur and they can take a good chunk out of your retirement savings depending on when the market goes down during your retirement years.
You may want to try to find recession-proof investments that can withstand severe stock market declines.
At the end of the line
This is the right time to grow your wealth in anticipation of your retirement. Consider ways to protect your retirement tomorrow. This way you will be sure to avoid throwing money away in retirement.
Changing your spending and investing habits while you’re working could help you manage your problems in retirement. Making good financial decisions today will help you enjoy your retirement for years to come.
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This article 15 biggest threats to your retirement plan (and how to fight back) originally appeared on FinanceBuzz.