*this post may contain affiliate links, please see our disclaimer page for more info
12 Reasons You’ll Go Broke in Retirement
As we all get older and start thinking about retirement it’s easy to say “oh I’ll have enough money” but there are a lot of things to consider that you probably never thought of. When looking at survey’s and polls many people note that they haven’t saved enough to retire, so here are the reasons you’ll go broke in retirement.
It’s easy to plan and avoid simple mistakes so you can have the best retirement ever.
You Stopped Saving
Sadly, people seem to think that when you’re retired you no longer have to save money. One of the major reasons you be broke in retirement is you won’t have enough funds to carry you. Whether you have a pension or stocks or still working part-time, you still need to keep saving.
Consider this, if you retire at 60 years old you may live until 90 (women will live longer than most of the men) so just because you stop working doesn’t mean you stop saving. There will still be expenses, health care, rent, utilities, food, retirement home costs, etc.
Historically, the stock market has continually gone up, this means that you’ll keep making more money because of compound interest. 30 years is a long time if you have enough saved you can just pull the gains from the previous year and the principle will keep growing.
You Didn’t Diversify Your Investments
You put all your eggs in one basket. Spread it out, as you retire you need to consider safer investments, so consider moving at least 50% of your portfolio whether it’s in stocks, ETF’s RRSP’s into less risky areas such as real estate, bonds, REIT’s or less volatile ETFs.
Once you’re in your golden years less risk is ok, you want to protect what you have, but still make a reasonable gain each year.
We’ve already started to consider buying a triplex and getting rid of the house. The kids aren’t happy about the idea but cutting our mortgage having someone else pay it, then down the road, we already have a smaller space so downsizing isn’t necessary.
We’ll have less space but the kids won’t be around forever, plus when we’re gone my girls will have an investment property that they can own to keep as a second income, live in it or sell it. I’ll be gone so it will be their choice.
You lived too long!
I’ll say it once and I’ll say it again one of the 12 biggest reasons you’ll go broke in retirement is you are going to live longer than you think. Most experts say you need to save for 30 years, I would argue you need to save for at least 45 years.
Science and technological advances are happening so fast now that you should expect that when you retire those advances will keep you alive longer. If you save for only 30 years and live for another 15 years after that what are you going to do?
I attended a retirement course my work offers all employees a few years ago. On the last day, a medical doctor spoke to us about how medical advancements happen exponentially every day. The speed of technology and the ability for specialists can share findings of their work around the globe so much faster and easier now.
She said you should expect or plan financially to live to 100 years old.
A doctor who finds a solution to a medical problem can now share this info around the world instantaneously where it had to be published in a medical magazine for others to find it.
This means that you’re going to potentially be around longer than you expect in better health than you could have imagined.
You Didn’t Have a Safety Net
I don’t think its enough to depend on your pension (government or employer) to carry you through retirement. All it takes is one government (Trump government shutdown anyone?) or hard times for someone to make the decision to say its time to cut it or eliminate your pension because they can’t afford to pay it anymore.
Pension plans never expected or planned for so many people to retire at the same time or live as long as people are living or expected to live.
The solution is to have a safety net. Save more for your retirement. Have side gigs or side hustles to cover you in emergencies.
Right now my wife and I are looking and investing in a duplex or triplex that will provide a second income. This helps us in two ways it 1) it accelerates our savings for retirement and 2) we have a place to live when we downsize that is paid for.
This blog is something I intend on continuing into retirement. I will find ways to monetize it that will bring in some extra cash down the road each month as well.
Medical Debt
Now in Canada, this is not so much an issue, while wait times might be a little longer I’ve not seen a priority not taken care of immediately if diagnosed. I also think that with free health care the system is over-burdened with patients that should have gone to their family doctor for a sniffle than plug up the emergency room. When it’s free and everyone has the right this is going to happen.
In the USA it’s a completely different story, you need medical insurance and like any corporation, the goal of an insurance company is to make money. Many do not have insurance and its well documented that many in the USA cannot even get basic health and dental care without it.
I don’t know any other way around it but you need health insurance. Medicare, when you turn 65, will not be enough.
Don’t let the lack of insurance be one of the reasons you’ll be broke in retirement.
Too much Debt when Starting Retirement
Did you get your house paid off prior to retiring? Did you get your Car and other big expenses paid off? Most financial advisors will tell you that your retirement funds are to cover your costs once all of those expenses are paid off.
You need to plan to do so that so you are not carrying too much debt into retirement as you may not have a way to increase your income to pay it off faster.
Reasons you’ll be broke in retirement is because you still have one or more below:
Mortgage
Car payments
Credit debt
Loans
If this isn’t going to happen you need to find a solution to take care of it, find ways to earn more with a side gig or side hustle, cut expenses to divert to debt or downsize and sell what you don’t need.
The goal is to enter into retirement without the burden of debt, enjoy your retirement do the things you couldn’t when you worked.
Still Financially Taking Care of the Kids
This might be hard but hopefully, you’ve taught your kids the value of a dollar. Reasons you’ll go broke in retirement is because you’re still supporting your kids financially.
If you are still supporting your children financially going into retirement it’s going to have a very negative effect on your retirement.
In Canada, one year of tuition plus room and board at a university is $20K in the USA you can double that to at least $40K. Let’s say my daughter decides to be a doctor (fingers crossed Lol) 8-10 years of post-secondary school at $20K = $160K at the low end of 8 years.
They are going to have to find a way to support themselves without you footing the whole bill. I worked 3 jobs during university it was hard but it taught me a few things
1) the value of a dollar
2) if I worked hard I could do it
3) school is expensive and if I’m paying for it I better do well.
Statistics are also showing your kids are not leaving the house as early as they used to, are you still paying for groceries? their part of the mortgage? Or other expenses they really should be taking care of at that point in their life.
Life is hard and if they haven’t learned the value of a dollar and always get handouts how do you ever expect them to leave? Would you?
Costs of Getting old
You hopefully will have a long healthy retirement. There is a big but, what if you get sick or have some debilitating occurrence that requires daily care or even more so if you have to be put into a nursing home.
Homes are not cheap; my wife works at one in town the starting price for long-term care is $5K a month. This does not include extras like baths, pill delivery or clothes cleaning, these are all extra.
Does your retirement plan account or this potential, if not it should?
Pulling Your Investments Out of the Market Too Early
As I mentioned earlier you’re going to live longer so you need to keep what investment you have working for you. If you pull them out too early or pull them out when the market dives a little you may pay the price.
Remember that historically the stock market always bounces back, so if you’re going to plan to be retired and in good health for upwards of 40 years you need to keep going on your investments.
Plan for the long haul just like you were told when you were younger. Nothing has changed.
You Make Bad Purchases or Investment Decisions
When you’re retired is not the time to give money to some Nigerian Prince or fall prey to online or phone scams.
Many people have fallen victim to these practices. They have been around for decades preying on people who have good hearts and don’t know any better.
The normal scams are sending money to avoid tax issues, sending money to help a niece or nephew out who is out of the country, paying for services that you will never receive (internet scams)
Never give your personal info or credit card info over the phone. There are some who have lost thousands on scams thinking they were doing the right thing. These scammers are good at what they do it’s their job. They count on 99 of 100 people hanging up but if they get that one person it could ruin any retirement plans they may have had
Check out this link for examples of scams to avoid:
https://clark.com/scams-rip-offs/top-10-financial-scams-targeting-senior-citizens/
You’ve Changed Your Spending Habits
When you retire you will be on a limited budget and you’ll be limited to what you’ve saved or you have as a pension.
This isn’t the time to spend willy nillly, it will contribute to the reasons you’ll be broke in retirement. Remember you’re going to have more time on your hands. More time to kill. You need to ensure that you’re not going to overspend on what you have saved because you’re bored.
Taking extravagant trips, eating out all the time and hitting the shopping mall are not ideal ways to manage your retirement budget. There are plenty of activities to do that do not include spending money, volunteering, walking, working for a local political party or person, working at your local church, etc.
See my post here for things to do when retired.
Taking the time to budget appropriately will help avoid these traps. You don’t want to watch every dome but your quality of retirement may depend on it. Avoid impulse buys, if you have a routine stick to it within the boundaries that your budget will allow.
If you find you need more money to do certain things, adjust to save or find other ways to make extra income
You got Divorced
Sounds odd but if you got divorced earlier in your life, it may have a direct impact on your retirement. Sadly, over 50% of marriages end in divorce, that divorce can and will have a direct impact on your potential earnings.
In many cases, one partner can buy the other partner out if one makes more than the other. Meaning you may have unplanned expenses you didn’t count on that could have a negative effect on your retirement savings.
Those who get divorces closer to retirement the impact may be even greater.
To resolve all possible problems, get a good lawyer… guess what that costs money that you never planned for as well.
Hopefully, the financial piece can be resolved with a little effort and can be settled amicably but in the end, it more than definitely will affect your savings.
Conclusion – 12 Reasons You will be Broke in Retirement
As you can see from the list above there are many reasons why your retirement could be derailed. The upside is that most can be avoided with a good plan. Start early to avoid potential pitfalls. I’m turning 50 this year and I’m actively starting to plan our retirement so that we can enjoy every minute of it.
Let’s face it shit can happen that you can never plan for but preparation is key.
If you think you have a shortfall, look at ways to boost your savings or ways to downsize. Maybe you don’t need two cars or that giant house. Perhaps cutting eating out once a week could add an extra $200 a month to your retirement plan.
It’s easy to fix with some simple changes, but you need to address it head-on.
As always, if you like this post or the blog please share it.
My goal is to create a retirement community where everyone can share their experiences of either being retired (we want to learn from you), preparing to save for retirement or making more money for retirement we want to hear from you.
If you are at all interested in creating your own blog (I have so much fun with it!) I highly recommend Alex and Lauren’s courses at Create and Go. They have tried it all and now offer these courses on how to set up your own blog and avoid the mistakes they made.
They explain everything in a way that is easy for anyone no matter what age you are to create your own blog.
You can make money Blogging, by the way, Alex and Lauren made $150K last month, so they know what they are talking about. It is an affiliate link, but I have purchased all their courses and love them and there is no extra cost for you. They are by far the experts in this area and genuinely want you to be successful.
My review of their Launch your Blog Course is here.
My review of their Pinterest Avalanche Course is here.
All the resources I recommend can be found on the Resources Page. I wouldn’t recommend them if I didn’t use them myself.
If you have any questions don’t hesitate to drop me a line at theteam@wickedretirement.com I’ll always respond.
Until next time…