How Does Retirement Work? 5 Retirement Realities
Predicting exactly what your retirement will be like is about as possible as a meteorologist predicting the weather correctly every single time. In fact, few retirees find their financial futures playing out precisely as they assumed. But, understanding some of the more common assumptions about retirement may help you get closer to your goal than most.
How does retirement work - will I really "outlive" my money?
Generations ago, as people retired, many did live in dire straits, sometimes “down to their last dime,” which lead to the creation of Social Security. Today, Social Security is still around and a common supplement to one’s retirement strategy. True, health crises can sometimes impoverish retirees, but working with a financial professional may even help you prepare for this hard-to-anticipate cost.
How does retirement work - will I be able to spend as much as I do now?
A quick internet search reveals all sorts of sources instructing new retirees should strive to retire on 70-80% of their end salary, but it can be a tough one to achieve.
Most new retirees often want to travel, explore new pursuits, learn some hobbies, and finally get around to those things they had put off when they were too busy with work. So, in the first few years, some may spend roughly as much as they did before retirement.
For many retirees, median household spending increases on the way to a retirement transition. But, with a smart financial strategy, the annual median household spending in retirement tends to decline gradually after age 60 and begins to plateau when people reach their early eighties.
Practice makes perfect, even in retirement
On average, households headed by those older than 65 spend 25% less annually than younger households (a difference of more than $15,000). While health care spending increases in retirement, other household costs decline, particularly transportation and housing expenses. If you retire full-time, then odds are you will save a lot on income tax. However, if you're still working and need to complete your taxes, feel free to review our resource on 2022 tax brackets and deductions.
Living the life you want
In general, American retirees seem to have it pretty good. A recent survey found that 47% of American retirees feel that the time they put in before retirement allowed them to enjoy the same standard of living they had while working.
Remain flexible in retirement
How does retirement work? By being flexible. Your retirement may differ slightly or even greatly from the retirement you have imagined. Fortunately, it may be possible to create a flexible retirement strategy with the help of a financial professional. It’s never too late to start!
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