By Rick Hellberg, ChFC®, CLU® and Michael Diaz
The marathon to retirement has been long and challenging; and with the finish line finally in sight, you’re probably ready for a well-deserved break. As much as it would be nice to retire and be done with all the planning, saving, and strategizing that got you here, it’s not that easy. The fact of the matter is that retirement planning cannot be set aside just because you’ve officially stopped working. The years after retirement require just as much, if not more, proactive planning and sound decision-making in order to ensure you are able to thrive in retirement—not just survive.
In our last article, we talked about the three most common mistakes in the quest for an abundant retirement. In this article, we’ll continue the discussion of Retiring Abundantly by exploring the first 6 obstacles many of our clients face as they enter their golden years. Next month we’ll tell you about the final 6 hurdles you could encounter.
The Burden of Worry
One of the biggest obstacles to retiring abundantly is the heavy burden of worry that many of our clients experience both before and during retirement. Sometimes worrying about the future is constructive and leads to taking action, like proactively saving for retirement or taking steps to live a healthy lifestyle and reduce your risk of serious disease. Obsessive worrying, on the other hand, is a waste of time, shortening your life and robbing you of joy and happiness. No, really! Research has shown that constant worrying and catastrophizing, the kind that doesn’t lead to action or change, can shorten your life. (1) And elderly individuals often state that their biggest regret in life was the amount of time wasted worrying. (2)
Constructive worry coupled with proper action is good and can push you to achieve things you otherwise wouldn’t. But beyond that, try to limit the time you spend obsessively worrying and overthinking things you can’t change. Do yourself a favor (and potentially add years to your life!) by not letting needless worry rob you of a single moment of joy or happiness.
Running Out of Money
Tennessee Williams once said, “You can be young without money, but you can’t be old without money.” This was true when he said it and it’s even truer now! Life expectancies are on the rise and the stability of Social Security is on the decline, meaning the costs of retirement will just keep going up.
The Centers for Disease Control and Prevention reports that the average life expectancy for a woman is 80 and a man is 75, (3) meaning that individuals who retire at age 65 should plan for at least a 10-to-15-year retirement. Yet only 36% of Americans are financially prepared to live that long. (4) It’s no wonder that 49% of people worry about running out of money, (5) even millionaires. This is one of those worries that are not unfounded. But the good news is, the sooner you start planning ahead, the more likely you will be able to set yourself up for an abundant retirement.
Increasing Tax Burden
Beyond the very real worry of running out of money, many of our clients also have to worry about the increasing tax burden that’s being placed on the shoulders of high-earning families in this country. In fact, the top 10% of earners are paying 70% of the tax bill, (6) and it seems like that can increase any time at the whim of Congress.
Most people think about taxes on the income they earn. Unfortunately, there is more to it than that. Income is one thing, but your capital can be taxed not one, not two, but up to three times!
- Taxes on your income: Dividends and interest are taxed at your ordinary tax rate.
- Taxes on your gains: Once an asset has been sold, you are taxed at the capital gains tax rate. Though this is much lower than your ordinary tax rate, it is still a tax nonetheless.
- Taxes on your estate: At death, your capital will be taxed yet again if your estate is large enough.
The best way to retire abundantly is to make sure your investments are as tax-efficient as possible. Think of them as a stoplight: green assets are good because they are not taxed at all; yellow assets are only taxed once; and red assets are taxed multiple times. The goal is to turn yellow and red assets into green assets through creative retirement strategies and tax-efficient investments.
Rising Healthcare Costs
Healthcare costs in America are among the highest in the world. (7) And as you age, you will likely require more healthcare services. According to the Fidelity Retiree Health Care Cost Estimate, the average couple at age 65 will need $300,000 saved to cover healthcare costs in retirement. (8) And that doesn’t even account for the costs of long-term care (LTC).
The unfortunate reality is that LTC costs are so high that they could potentially wipe out a bulk of your retirement funds. In 2022, the national LTC average cost is $306 per day or $9,305 per month for a private room in a nursing home! (9) To make matters worse, women often pay significantly more than men for LTC because of their longer life expectancy. Women usually require LTC for 3.7 years (or around 44 months), versus 2.2 years (or around 26 months) for men. (10) When the costs are added up, women will spend nearly $409,420 and men will spend $241,930 on LTC alone.
And this amount is only projected to increase. By 2032, the daily cost for a private room in a nursing home is expected to jump to $411, or $12,505 per month, and assisted living will reach $6,229 per month, compared to $4,635 today. (11) These costs can vary dramatically based on the level of care and amenities required, as well as the size of the room, and your geographic location.
While Medicare will cover a portion of traditional healthcare needs, it does not cover LTC, making this a significant obstacle to retiring abundantly. But in this case, knowing is half the battle. There are ways to meet this need with proactive planning and financial management.
Retirement Inflation
The inflation rate you hear on the news is not your inflation rate. There is a different inflation rate for retirees, one that is much higher than that of the general population, mostly because of the healthcare costs we just discussed. Inflation erodes the purchasing power of your income and savings. The interest rate you get on ultra-safe investments is usually much lower than the rate of inflation. And unless your means grow, you will have to cut costs further each year of your retirement to compensate for the loss in purchasing power.
Social Security doesn’t help with this issue, despite the annual cost-of-living adjustment for benefits. There are two ways to measure inflation: CPI-W and CPI-E. CPI-E measures how increases in the price of goods and services (inflation) specifically affect elderly people. Yet, Social Security uses CPI-W, which measures the effect of inflation on the average non-retiree population, to make the annual cost-of-living adjustments. CPI-E is usually much higher than CPI-W, meaning retirees are steadily losing benefits over time because their expenses increase faster than their benefit amount.
The Increasing U.S. Debt & Deficit
Today, the U.S. national debt stands at $30 trillion, (12) a staggering number that can be difficult to conceptualize. As a country, we’ve gotten so used to hearing enormous numbers in the media that we’ve become desensitized to what they actually mean.
Think about a single second of time. If you had 1,000 of those seconds, that would be 15 minutes. A million seconds would be two weeks. A billion seconds would be 32 years, and a trillion seconds would be 32,000 years. So our national debt is 30 x 32,000 years’ worth of dollars. Sounds like a lot to me, how about you?
Even Federal Reserve Chairman, Jerome Powell, has acknowledged that this is an unsustainable path for the country and that it needs to be addressed. (13)
The ongoing U.S. debt and budget crisis is yet another factor that could affect your ability to retire abundantly, jeopardizing things like Social Security and Medicare, among other things. It’s true that the Social Security program’s trust funds have been producing a surplus since 1983. But those surpluses officially ran out in 2021, forcing the system to start drawing down its reserve assets. (14) Recent estimates suggest that the current program will run out of funding by 2034, (15) at which point, if no changes are made, benefit payments may shrink to 80% of what Americans expect. (16)
One thing is certain: Relying on our government to ensure you’ll be able to retire and maintain your lifestyle is a foolhardy plan. You will have to take charge of your own retirement plan and do it sooner rather than later if you hope to retire abundantly.
We Can Help You Retire Abundantly
If you are facing some of these obstacles, know that you don’t have to navigate them alone. At PeterAlexander, we can help you retire abundantly. To learn more and for a free personalized copy of Rick’s book Retire Abundantly, reach out to us at 610.940.1441 or info@peteralexanderinc.com.
About Rick
Rick Hellberg is president and CEO of PeterAlexander, a financial planning firm founded in 1991. Rick is passionate about providing quality, objective financial solutions so his clients can pursue their financial goals and create the legacy they desire. He strives to equip his clients with comprehensive financial services and advice so they can be empowered to make sound financial decisions. The plans Rick and his team develop help their clients to reduce their taxes, educate their children, fund their retirements, pass their businesses on at fair value, and create programs to attract and retain valuable employees, all so that they can focus on what matters most to them. Rick has a Bachelor’s degree in Liberal Arts from Penn State, along with the Chartered Financial Consultant® (ChFC®) and Chartered Life Underwriter® (CLU®) certifications. He has spent over 40 years working with successful individuals and designs tailored solutions to meet his clients’ unique needs.
Rick resides in Philadelphia with his lovely wife, Lisa, and their two Shiloh Shepherds, Bentley and Winston. He is also the very proud father of two wonderful young men, Peter and Alex. In 2010, Rick ran for Congress in the 2nd District of Pennsylvania and has stayed active in local politics. To learn more about Rick, connect with him on LinkedIn.
About Michael
Michael Diaz is a financial advisor at PeterAlexander with over 15 years of industry experience. Michael is passionate about helping people overcome financial challenges and avoid potential pitfalls so they can focus their time and energy on the most important things in their life. He spends his days working with successful business owners and families, implementing investment and tax reduction strategies to maximize their wealth. Michael’s goal is to help protect his clients’ financial security, putting them first and helping them navigate every stage in their financial journey. Michael earned his Bachelor of Science in Commerce and Engineering from Drexel University. When he’s not working, you can find Michael traveling, cheering on local sports teams, and exercising outdoors. Michael loves spending time with his wife, Abby, and their baby girl, Monroe. To learn more about Michael, connect with him on LinkedIn.
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(1) https://www.verywellmind.com/worry-and-anxiety-impact-longevity-2223983#citation-3
(2) https://www.today.com/health/biggest-regrets-older-people-share-what-they-d-do-differently-t118918
(3) https://www.cdc.gov/nchs/data/vsrr/VSRR10-508.pdf
(5) https://www.aarp.org/retirement/planning-for-retirement/info-2019/retirees-fear-losing-money.html
(6) https://www.ntu.org/foundation/tax-page/who-pays-income-taxes
(8) https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
(9) https://www.genworth.com/aging-and-you/finances/cost-of-care.html
(10) https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
(11) https://www.genworth.com/aging-and-you/finances/cost-of-care.html
(12) https://www.cnn.com/2022/02/01/economy/national-debt-30-trillion/index.html
(13) https://www.cnn.com/2022/02/01/economy/national-debt-30-trillion/index.html
(14) https://www.cbpp.org/research/social-security/understanding-the-social-security-trust-funds-0
(15) https://www.cbpp.org/research/social-security/understanding-the-social-security-trust-funds-0