When a person is looking to retire, the last thing they may be concerned about is financial safety. However, there are financial dangers of retirement that most people do not know about but should. There are dangers that could be avoided with careful planning, while there are some financial dangers that are out of someone’s control.
Financial Dangers You May Have Some Control Over:
- Identity Theft– When people go into retirement, they could become victims of identity theft a little more easily than people who have not retired. This is because people who are retired don’t tend to worry about their finances, and do not check their credit report regularly. Checking a credit report regularly could prevent a thief from completely taking over a person’s identity and finances.
- Running out of Money- Many people find that they run out of money to live comfortably after they retire. This may be difficult for some, especially if they were used to a certain lifestyle before retirement. It is important that a person makes a budget for retirement, this way their funds last as long as possible.
- Negative Credit Score- If a person carries a good credit score into retirement, it is important to maintain it. This is because a credit score can impact a person’s life even after retiring. If a person hasn’t had good credit in the past, it is never too late to change that.
- Health Costs- Staying healthy throughout life could be a good way to prevent expensive healthcare costs that could drain funds during retirement.
Financial Dangers You Have Minimal Control Over
- Investments – Even though a person may make smart investment decisions, there is only so much they can control. With investments like stocks, it is almost impossible to predict what direction their investment will go by the time a person retires. Bonds offer a little more security, but the return from them is usually minimal if a person keeps them until maturity.
- Inflation- When saving or thinking about retirement expenses, most people do not factor inflation. In economics, inflation is a slow increase in prices and a fall in the purchasing power of money. For all Americans, retirement savings may be impacted by inflation. By the time they plan to use their savings, the purchasing value of it has gone down, sometimes by a large amount. To avoid this, it is a good idea to pay attention to annual inflation rates and save accordingly.
- Lack of Tax Breaks- In the past, the older an American was, the more tax breaks they generally received. However, it seems as though this trend will remain a courtesy of the past. As time goes on, this is becoming less and less true. In fact, trends show that most Americans will be paying the same amount in taxes that they paid before retirement, despite having less income. So before retiring, it is important to not factor in tax breaks, because they may not be there.
- Medicare- The health industry in America is still finding its footing, and there are changes made to it all the time. It is best to try and save something before retirement in case Medicare cannot help with funding.
- Social Security- This is major backup for people when they retire. For many, these are the only funds that they rely on when they reach retirement. Some people do not receive their full benefits because there simply is not enough funding to give out. In addition to this, the government has introduced taxes to social security benefits.
The Importance of Saving
With all these financial dangers that may come with retirement, it is extremely important to save as much as possible before and after retirement. Many people put money away in their 401k plan or IRA. Often, their contribution is matched by some percentage from their employer. This is an easy way to save money for retirement without even thinking about it. A person under fifty can add up to $18,500 a year into their 401k and $5,500 a year into their IRA. While a person over fifty can add up to $24,500 a year in their 401k and $6,500 a year into their IRA annually.
There are many financial dangers of retirement that people don’t know about but should. Financial dangers of retiring can be grouped into two categories: dangers that could be avoided, and dangers that cannot be avoided. It is best to become informed about these financial dangers and prepare for them before retiring. Investing in a 401k or IRA plan may be of the most secure and safest ways to save for retirement.