The Three Horsemen of the Retirement Apocalypse

There are three things that commonly wipe out retirees’ savings or at least ensure misery and worry throughout one’s retirement. Let’s call them the three horsemen of the retirement apocalypse: credit card debt, health emergencies, and overspending. Unfortunately, it’s not uncommon for one or more of these dark riders to invade the lives of older Americans living on a fixed income. The first is…

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Credit Card Debt: The First Horseman

A recent survey by Clever reveals that 67% of Americans are carrying credit card debt. That is they’re not paying them off each month. Not surprising considering that the Bureau of Labor and Statistics reports retired Americans are outspending their annual income by $4,000. While retirees typically rely on savings or investments to cover the shortfall, many fall back on credit card purchases. It’s a painless choice in the moment that ensures financial pain in the future. Even more dangerous is the fact that retirees carrying credit card debt are enjoying relatively low-interest rates. However, as the Federal Reserve increases interest rates in 2022 and beyond, retirees will find their minimum payments increasing at a time they can least afford it. 

Health Emergencies: The Second Horseman

The employee benefit research institute says a 65-year-old man would need to save $72,000 just to have a 50% chance of affording healthcare expenses in retirement. 

Those who mistakenly believe that Medicare will cover all medical expenses have a big surprise coming to them. Medicare does not cover prescription drugs long-term care doctor bills and co-pays auto care routine vision checks and hearing aids. All of which are the common medical expenses seniors incur. This is why it is wise for every retiree to have a Medicare supplement plan in place as well as a modest dental and vision plan. While the premiums for supplement plans increase each year they pale in comparison to medical expenses not covered under Medicare Parts A and B.

Overspending: The Third Horseman

A majority of retirees regret not saving more or retiring later. A study by the Employee Benefit Research Institute may reveal why. It found 46% of retired households actually spend more in the first two years of retirement than they did during their final working years. The Institute also found 85% of retirees who spent 20% or more on medical expenses had a budget deficit. Overall is the retiree’s spending habits during their working years often predict their future spending habits. Practically speaking retirees can often reduce their expenses by paring down to one vehicle saving on maintenance and insurance costs. Additional savings may be found in menu planning before grocery shopping, locking up credit cards in the family safe, and canceling subscriptions to shopping catalogs. Often older retirees struggle with loneliness and a lack of purpose- both of which can trigger depression and the temptation to comfort themself with purchases; what we commonly call retail therapy. This can create a negative cycle that begins with regret for the purchase, sadness at their choice, and shopping to lift their spirits.

Banishing financial nightmares

There are several options one can use to banish these threats to financial security in retirement. One is to return to part-time work to cover monthly expenses. Another is to consolidate debt with a credit card balance transfer or personal consolidation loan. Another is to tap into your home value with a reverse mortgage. Using a home equity line of credit is not a wise choice for someone who’s already struggling to meet monthly expenses. A reverse mortgage generates immediate cash flow either by eliminating the existing mortgage principal and interest payments or by providing a line of credit that can be tapped into when needed. Retirement can be wrought with uncertainty and worry. However, knowing where the common threats to retirement come from is the first step to a more worry-free retirement. 

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