Wouldn't you love to retire right now? Unfortunately, retiring successfully means planning carefully and accurately for the expenses that you'll incur in your post-working years. Along the way, there will be a number of bumps that could throw your plan off track.
1. Stock Market Drop
Looking back at the crash of 2008, it's clear that we can't simply hope the stock market stays level, and that's especially true the closer you are to retirement. The first hit you would have noticed was to your portfolio. According to Yahoo Finance, the Dow Jones Industrial Average dropped from its height of 14,279 in October 2007 to a staggering 7,839 point difference of 6,440 in March of 2009.
Not only did investments take a big hit, our ability to earn an income, and thus invest further, also suffered. According to the Bureau of Labor Statistics, the 2007-2009 recession saw the steepest increase in the unemployment rate of any other post-WWII recessions. Suddenly, many Americans found themselves with a portfolio worth a fraction of what it was worth a few short months ago, and without a way to increase their savings to make up for the deficit.
2. Boomerang Kids
According to studies by the Pew Research Center, the number of Americans living in multi-generational homes has been increasing since 1980. In fact, this last recession marked the largest increase in the number of multi-generational households in recent history, with numbers rising to 51.4 million in 2009 from 46.5 million in 2007. Between the tough job market, increasing student debt loads and overall trend of later-in-life marriages, young adults are moving back in with their parents.
This means parents are bearing the burden of additional living expenses, and with the average cost of raising a child to eighteen in the United States being around $226,920 (according to CNN Money), these additional costs really eat away at the finances of the parents. (To learn more, check out Retirement Trends: Boomerang Parents.)
The CDC reports that, as of 2009, the divorce rate in the United States is about 50%. Not only is a divorce a huge lifestyle change emotionally, the financial impact can be devastating. At minimum, a divorce means a shift in terms of where the income is being allocated. For example, each partner may be paying for housing costs individually instead of together.
At its most impactful, a divorce means one partner may be going back to work after years of working in the home. Retirement assets will likely be divided, and this is all before considering what the actual divorce will cost. A lawyer will likely cost hundreds of dollars an hour, and the less you and your former spouse agree on the terms, the longer and more expensive the process of divorce will be.
4. Lifestyle Changes
If you've recently taken up an expensive hobby like traveling, you're obviously going to need more money than you may have estimated for your retirement. In addition, if your health deteriorates or you are diagnosed with a new medical condition, you'll have to factor in the costs of healthcare, medications and additional costs, such as accessibility adjustments to your home should you become disabled. Make sure you keep up-to-date on what your medical insurance will and will not cover, and that you include the cost of premiums in your post-retirement budget.
5. Poor Planning
It's the most commonly cited reason for delaying retirement. Unfortunately, you need to be aware of the possible problems that may throw off your retirement plans (like the ones listed above), and it's crucial that you hedge your investments and plan as best you can for these surprises. Luckily, making and sticking to these plans isn't as complicated as it may seem. Start educating yourself by reading quality materials, then seeking out retirement consultants at your banking institution or privately to make sure you're on track. (Get started with our Retirement Tutorial.)
The Bottom Line
Don't be intimidated by your finances. The earlier you get started, the easier saving for your retirement will be, and the less disruptive it will be to your present day life. Inform yourself, create a reasonable plan, and you'll be ready to retire before you know it. (For more, read Retirement Planning In A Changing World.)