One of the biggest problems individuals face in retirement is running out of money (longevity risk), driven by the challenge of making savings last over a longer lifespan.
For retired people, higher inflation is especially onerous because they may have a fixed income that can't support rising costs. In addition, many of the goods and services retirees use most often regularly experience greater-than-average price inflation. Health care costs, for instance, can be particularly onerous.
A Common Thread: Longevity Risk
Longevity is a blessing, but it's also the greatest financial risk in retirement. The longer you live, the more you need — for healthcare, living expenses, and inflation-adjusted spending. Outliving your money is a real and terrifying possibility for many retirees.
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Seniors face many challenges that make it hard to live independently. Chronic health conditions, financial insecurity and changes in mobility can make life harder and make it more difficult for a person to get the nutrition and connection they need.
Outliving Your Savings
“According to the Transamerica Center for Retirement Studies, the top fear of people aged 50 and over, 43% said their greatest fear was outliving savings and investment,” Johnson said. Ben Waterman, CEO of Strabo, called this “longevity risk” and said it's “the biggest fear.”
Moynes refers to as the 3 D's: depression, divorce, and cognitive decline. This period can be incredibly challenging as retirees struggle to find a new sense of purpose and direction without the familiar structure of their careers.
The "240,000 rule" (or $1,000-a-month rule) is a retirement guideline suggesting you need $240,000 saved for every $1,000 of monthly income you want in retirement, based on a 5% annual withdrawal rate ($240,000 x 0.05 = $12,000/year or $1,000/month). It's a simple way to estimate savings needs, but it doesn't account for inflation, taxes, market volatility, or other income sources like Social Security, making it a starting point, not a complete plan.
Common challenges of retirement include:
Struggling to “switch off” from work mode and relax, especially in the early weeks or months of retirement. Feeling anxious at having more time on your hands, but less money to spend.
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The five common emotional stages of retirement generally follow a path from anticipation and excitement (Honeymoon) to a period of questioning and boredom (Disenchantment), followed by finding new purpose (Reorientation), establishing new routines (Stability), and eventually reaching contentment or fulfillment, though the exact names vary, often including phases like Imagination/Anticipation, Honeymoon, Disenchantment, Reorientation, and Stability/Contentment. This journey helps retirees adjust from a career-focused identity to a new, balanced life, focusing on personal growth, relationships, and new goals.
The website focuses on the "4 C's" of retirement, four concepts that form a process that can help pre-retirees in the transition to retirement: clarity, comfort, cost of living and certainty. "Retirement objectives change over time.
What do retirees regret the most? Most retirees regret not planning ahead, especially around finances, lifestyle goals, and how they'll spend their time. Careful retirement planning and financial advice can help you avoid these common regrets.
1. Longevity Risk: The Danger of Outliving Your Money. The biggest threat to boomers isn't a market crash, it's living longer than their money lasts, according to Linda Jensen, a certified exit planning advisor and founder of the Heart Financial Group.
Common reasons people end up hating retirement include lack of purpose, reduced social connection, unplanned or forced retirement, health issues, and financial stress.
Vision and hearing loss are some of the many physical changes seen in normal aging. Seniors are also at increased risk of falls, which can lead to broken bones, head injuries, and a slew of other health complications. Seniors may also be concerned with their decline in cognitive function.
A common starting point is to estimate that you'll need about 70% to 80% of your pre-retirement income to maintain your standard of living in retirement. For example, if you earn $150,000 annually while working, you might need between $105,000 to $120,000 as a starting point in retirement.