Saving for retirement often remains a constant source of stress for people once they launch a career. People often struggle to figure out how much they need to save overall in order to stay on track with their financial goals. As people grow closer to retirement, their anxiety about saving and investing can rise considerably. The baby boomer generation is now preparing to enter retirement. As a result, this generation is facing unique stressors that can keep them preoccupied. Luckily, they can generally address these fears, which will enable them to feel more prepared to stop working. The following are some of the biggest stressors that baby boomers face when it comes to retirement:
1. Long-term care needs
A lot of confusion exists around what Medicare covers and how this coverage can be optimized in terms of costs. Unfortunately, one thing that the plan does not cover is long-term care, which can prove especially worrisome considering that this type of care costs about $50,000 annually. People can protect themselves from this expense by investing in long-term care insurance. While this type of insurance may not prove necessary, the fixed cost associated with it often makes it a better option than the unexpected expense of long-term care. Ideally, people will purchase this insurance long before they retire, usually in their mid-50s. At that time, they can lock in an affordable rate. While people can obtain this insurance later on in life, the premiums will be higher, and there is always the chance that people in poor health will not be approved. For these reasons, obtaining this insurance early is generally the way to go.
2. Inability to stop working
Some baby boomers may look at their projected expenses in retirement and feel like they will never be able to save enough money to stop working. Obviously, they can do more to reduce their anxiety when they recognize the problem sooner rather than later. However, some things can be done, even as people grow closer to retirement. In general, people are indeed working longer and often well past retirement age. A higher percentage of both male and female baby boomers are working past retirement age, as compared to previous generations, in order to save money. While working longer is definitely an option, people may also want to spend some revising their budget. Sometimes, finding ways to reduce your expenses can make retirement seem more feasible. Other times, individuals may want to sacrifice their current lifestyle to have the retirement lifestyle that they want. In other words, people can cut their expenses now and save more to meet their retirement expectations.
3. Outliving their savings
Some people are less anxious about being able to afford retirement and more worried about running out of money once they retiree. Individuals can address their anxiety in a number of ways. First, it often pays to stay somewhat invested in stocks during retirement. Of course, the majority of your nest egg should be invested in a way that minimizes risk. However, getting rid of stocks completely can stunt any potential growth for the future. Another way of dealing with this anxiety is by simply saving more for retirement, especially in the decade or so leading up to it. During this period, people can often put more into their accounts with higher catch-up limits. Putting as much as possible into your retirement account will help to create a bit of padding that can make you feel more comfortable with the idea of retirement.
4. Losing money on investments
Due to the economic impact of COVID-19, people have grown increasingly concerned in recent months about their losing money through investments. Many people preparing for retirement saw their accounts take a significant nosedive. While some baby boomers may not be planning to retire immediately, they could still be concerned about recovering in time and may think about moving their money to less risky investments. During a bear market, individuals should avoid selling off their investments since they will lock in their losses. For the most part, investing should be a long-term endeavor, but this could become more complicated as retirement grows closer. In general, people should work closely with a financial advisor to review their risk tolerance and figure out the best path forward.
5. Social Security might be cut
Many people depend on Social Security in retirement in order to pay their monthly bills. Indeed, relying on guaranteed income like Social Security for recurring expenses is smart, as it enables people to be more strategic in how much they withdraw money from their investment accounts. However, the possibility that Social Security could be cut is quite scary. Some people may even fear that Social Security as a program will be eliminated. This possibility is highly unlikely since the program is funded through payroll taxes. In other words, as long as people are working, the program will continue. On the other hand, cuts are a possibility in the future and may occur in about 15 years or so depending on the overall financial health of the United States. People who are particularly worried about this possibility may want to invest in a new income stream, such as a rental property.