The idea of retirement is changing alongside the turbulent nature of today’s economy. Many imagine retirement as a time to stop working and enjoy the freedom to do what they want. Now, many people who are at retirement age may need to continue working, or at least pick up a part-time job to supplement their retirement income. According to an article by CNBC, 13% of Gen Xers and Baby Boomers say they have postponed or considered delaying plans to retire or leave the workforce due to soaring costs.
The rate of inflation has risen from 1.4% in 2020 to a steeping 7% only a year later in 2021, making it even harder for the older generation to keep up their retirement funds. When inflation is greater than 0, prices can rise at staggering amounts for everyday products and services. With a fixed retirement income, it can be difficult to budget for basic necessities and many retirees are seeing how fast their money can disappear. The cost of living has increased rapidly over the past year, and it’s been difficult for working citizens to afford childcare or daily necessities. It will be even more difficult for them to retire. As of May 2022, the inflation rate has risen to 8.3%, the highest it has ever been. Anyone who wants to retire should begin to rethink their savings plan and sit down with an expert to talk about fund options.
If you are thinking about retirement, consider these four things:
Do I have enough in my savings if an emergency occurs?
Make sure that you have a healthy savings account before jumping into your retirement. Even better, designate a separate account for emergencies only, commonly referred to as an emergency fund. Your savings can include your personal savings account and investments that are easily liquidated if an emergency occurs. If you have a spouse, consider if they have a healthy savings or are still working and have enough funds in the event of an emergency. A good rule of thumb is to have three to six months of expenses saved before contributing to retirement.
If a good portion of your savings lives in the stock market, it can be difficult to retire during a down market. Make sure to pull these funds for retirement when the market is in a decent place.
What will my monthly retirement check look like?
There are incentives for retiring at an older age, including larger social security checks. Consider if you can work longer and hold off until retirement age to receive your full social security benefits. These higher benefits can help you throughout this period of high inflation. Additionally, decide what you want your retirement to look like and estimate how much money you’ll need monthly to make that dream a reality. Based on that amount, you can calculate how much you’ll need to start contributing monthly to your retirement to be able to save enough to hit your retirement goal.
Am I living above my means/are there things I can change about my current lifestyle?
Budgeting is an important part of personal finance. Review your spending and make sure that you have more money coming in than going out. Find ways where you can simplify your lifestyle in areas that you don’t care about. Begin tracking your monthly spending so you know where your money is going. This will help you stay on track and will cause you to yourself accountable for your savings goals.
How much are my monthly living expenses?
Do a monthly expense breakdown. Is your house paid for, or do you need to budget for paying off your mortgage? Do you have a car payment, or is your car paid off? Do you have any additional debt you need to pay off? Being debt free when you retire is a great place to be in. Also, if you own your house free and clear, but do not have a great retirement plan, then you can think about a reverse mortgage.
Another thing you will have to budget for is your health care and medical expenses. Work with a trusted Medicare agent to help you pick the best plan for you.
Overall, it may be risky to retire during this period of inflation, so make sure to analyze your finances and think about the future before doing so.