Could it be that pre-retirees are so clueless about their financial needs during retirement because it’s just too gosh-darn depressing to think about?
A recent report from insurance giant MetLife found that 50% of soon-to-be retirees aged 56 to 65 underestimate how much money they’ll need to maintain their present lifestyle (and then some) in the golden years. They also assume they’ll live less than the average life expectancy. “Retirement is often equivalent to death,” says Dr. Michael Cunningham, a psychologist at the University of Louisville, Kentucky. One of his primary areas of focus is people’s behaviors and decisions surrounding dollars and cents.
What’s more is that retirement is a vague concept, he explains. On the one hand there’s the fantasy of living out your life on a manicured golf course versus the general reality that retirement means downsizing. After all, it’s expensive to afford without a paycheck, without sufficient Social Security benefits and rising health care costs. Not to mention – and this is perhaps the biggest problem – people don’t save enough during their working lives to have a comfortable retirement.
“Planning retirement is like going to a dentist after not seeing a dentist for 20 years,” says Cunningham. “You’re expecting bad news, but you don’t know how bad the news is going to be.”
While the MetLife survey examined those nearing retirement, it’s never too soon to begin thinking and actively saving for 65 and beyond – especially if you want to make that golf course dream a reality. Dr. “Money” Cunningham offers these key tips to help avoid becoming a clueless retiree statistic:
1. WORK EARLY ON WITH A FINANCIAL ADVISOR
Figure out your cost projections during retirement under various scenarios. Things to consider: Will you work part-time during retirement? Will you need extra health care? Will you downsize and live in a smaller home? That said, make sure this advisor doesn’t put the fear of God into you. There are a number of folks out there who are scared they’ll never have enough money saved to survive retirement when realistically, they’re going to be just fine. Fortunately, some 60% of those surveyed above said they are seeking professional advice on long-term insurance and 401(k)s. The American Association of Retired Persons has a nifty retirement calculator at aarp.org.
2. PLAN FOR A LONG LIFE
Why be glum? The average life expectancy in the U.S. is 77 years. For you, it could be much longer. www.livingto100.com offers a quiz to determine your approximate life expectancy.
3. BE HONEST WITH YOURSELF (AND YOUR SPOUSE)
Explain your financial goals with your partner and be honest. You may be surprised to learn you have different expectations, which can determine what gets saved, what gets spent, how much is invested up until retirement. Answer even the simplest questions, like, “Are we going to keep our house here or go somewhere warm?”
Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Friday nights at 8 p.m.