Here Are 6 Signs That You Can’t Afford To Retire And What You Need To Do About It
The goal of retirement should be something you plan for and work toward no matter how old you are. There are a lot of people who are not on track.
In a 2021 survey conducted by Transamerica Center for Retirement Studies (TCRS), nearly half of American workers said they did not have enough income to save for retirement. Moreover, 57% of workers anticipate working after retirement. 80 percent of respondents said they had “financial reasons.”
You need to be sure you can afford to retire someday if you hope to do so. You may not yet be there based on these six signs.
Having A High Level Of Debt Is A Problem For You
Many people can’t afford to retire debt-free. It’s not realistic for many people to transition into retirement debt-free. In the opinion of Melissa Hannum, an advanced markets specialist with COUNTRY Financial, having some debt, like a home loan that may offer tax deductions, is not necessarily a bad thing. “It’s a problem when your debt is still high.”
According to industry guidelines, a mortgage should not exceed 28% of your pre-tax household income (principal, interest, insurance and real estate taxes). A maximum of 36% of your pre-tax income should be used to pay off your debts (housing, auto loans, credit cards, etc.). Hannum suggested that if you can’t keep your debt below these percentages, you aren’t ready for retirement.
The Amount You Spend Exceeds The Amount You Earn
There’s no doubt that shopping is good for the economy, but not necessarily for your wallet. According to Hannum, you are not on track to retire if you are currently spending more than you are earning.
As an employee, you may think that you will always be able to compensate for bad spending habits by taking on a higher-paying job, getting a raise or getting a bonus. It’s no longer possible to take advantage of those opportunities when you’re retired.”
It’s important to create a budget now and stick to it in order to get your spending under control. In Hannum’s opinion, a budget won’t stop you from shopping, traveling, or having hobbies — just make sure you account for them.
There’s Not Enough Money In Your Emergency Fund
While you are no longer receiving a paycheck, unexpected emergencies can still happen in retirement as well. According to Jordan Grumet, host of Earn & Invest podcast and author of “Taking Stock,” an unexpected car repair, appliance malfunction or emergency room bill can derail a retirement plan.
In order for retirees to be financially secure for retirement, they need to have at least one year’s worth of expenses in liquid and conservative investments, such as money market funds, short-term CDs, and high-yield savings accounts. You are not financially prepared for retirement if you don’t have that yet.
It’s Been A While Since You Reviewed Your Portfolio
You may not be ready for retirement if you put your 401(k) on autopilot when you first started contributing and haven’t checked it since. It is extremely hazardous to take excess risk as you approach retirement and your portfolio could suffer a serious blow just as you’re about to retire, she said.
As you approach retirement, it is important to make the most of your retirement savings. Hence, Hannum said, as you approach retirement, you should shift your portfolio from growth-oriented investments to wealth-preservation strategies. A financial professional can help you determine whether or not your portfolio needs to be rebalanced based on your situation.
You Do Not Have Enough Insurance
In retirement, it’s essential to have adequate insurance coverage, especially health insurance. Medicare is available for those 65 and older, but it isn’t free.
In addition to secondary insurance, Grumet pointed out that medicine costs should also be taken into account. “People should not retire without planning for medical expenses,” he said.
There Is No Social Security Plan For You
It’s not just about the numbers when it comes to preparing for retirement. It’s also about preparing mentally, Hannum says.
Her advice is to keep social and start thinking about ways to meaningfully occupy your time in order to stay social. If you have only coworkers and Facebook friends in your social circle, you may not be ready for retirement. Join a club, start a hobby, volunteer and make friends outside the workplace.