December 19, 2024
Retirement is one of life’s biggest milestones, often imagined as a time to relax, pursue hobbies, and enjoy the fruits of decades of hard work. For many, it represents the ultimate freedom—finally living life on your terms. But behind the dream lies a less glamorous reality: nearly half of middle-class workers face the risk of sliding into financial hardship during their retirement years.
This isn’t just about money; it’s about helping to ensure stability and comfort in your later years. The decisions you make today will shape the years to come. So, what does this mean for you if you’re considering retirement? It means now is the time to take a serious look at your readiness—both financially and emotionally. Are your savings truly enough to support the lifestyle you envision? Do you have a plan for managing challenges like rising healthcare costs or market fluctuations? And perhaps just as importantly, are you emotionally prepared for the shift away from work?
Retirement readiness is about more than hitting a certain dollar number in your accounts. It’s about creating a foundation that supports not just your finances but also your well-being and future goals. If you’re unsure whether you’re ready, don’t worry. By recognizing the warning signs early, you can take steps to address them and set yourself on a path to a more secure retirement.
Let’s explore 10 key indicators that might suggest it’s not quite time yet—and how you can work toward being truly prepared.
About 40% of middle-class older workers are expected to face financial challenges that push them into poverty or near-poverty when they reach age 62 and beyond. The disagreement often lies in how “poverty” is defined. For instance, the U.S. government sets the poverty threshold for an elder at an income of about $15,600 annually. Many professionals and practitioners find this definition unrealistic and inadequate.
Globally, poverty is usually measured more comprehensively. International standards often consider someone poor if their income is less than 50% of the median. By this measure, an American elder would be considered poor with an annual income below approximately $21,000. This number reflects a broader understanding of what it takes to avoid hardship. Many anti-poverty programs in the U.S. also recognize this gap, using thresholds of 150% or even 200% of the official poverty rate to define financial need.
The current U.S. definition of poverty doesn’t capture the full picture of financial deprivation. It fails to reflect real living costs, especially for older adults who face rising healthcare expenses and other challenges. For middle-class workers, this raises a critical question: Is your retirement plan strong enough to keep you above these thresholds? Understanding these risks is the first step toward building a more secure financial future.
For retirees, this reality highlights the importance of planning beyond the surface. Living on a fixed income in retirement can be challenging, especially if the financial benchmarks used to measure poverty don’t align with actual living costs. Retirees relying on outdated or minimal estimates may find themselves struggling to cover basic needs like housing, healthcare, and food.
It also means that retirees need to think beyond the numbers often used in government statistics. Setting a realistic retirement goal should involve accounting for rising costs, unexpected expenses, and maintaining a standard of living that helps ensure dignity and comfort. If you’re close to retirement, consider asking yourself tough questions:
Being financially prepared isn’t just about avoiding poverty; it’s about building a retirement that supports your goals and protects you from unnecessary hardship. Taking action now can help you create a more stable future, no matter how uncertain things might feel today.
Retirement may feel like it’s just around the corner, but it’s not just about reaching a certain age or milestone. True readiness requires careful planning and honest reflection on where you stand financially and emotionally. Many people are caught off guard because they overlook key signs that their retirement plan isn’t strong enough to support the years ahead.
Recognizing these indicators early can help you make changes now, giving you a better chance to retire comfortably and confidently. Let’s explore 10 signs that might show you’re not quite ready for retirement and what steps you can take to fix them.
Debt can quickly drain your retirement savings. Whether it’s credit card balances, personal loans, or a large mortgage, carrying significant debt into retirement can make it difficult to meet your everyday needs. For example, if you still owe $200,000 on your mortgage and have $15,000 in credit card debt, most of your monthly income could go toward these payments, leaving you with very little for essentials like groceries, utilities, or healthcare. Even smaller debts, such as an auto loan or unpaid medical bills, can add up and strain your budget over time.
When you’re working, it’s easier to manage debt because you have a steady income to rely on. But once you retire, your income often comes from fixed sources like Social Security or retirement savings, which may not be flexible enough to cover debt payments and unexpected expenses. This can make it harder to enjoy retirement or stay financially secure.
If you’re facing significant debt, it’s important to take steps now. Start by listing all your debts, including balances, interest rates, and monthly payments. Focus on paying down high-interest debts like credit cards first, as these can grow quickly and become harder to manage. Refinancing a mortgage or consolidating loans could also help reduce your monthly payments and make room for savings. The sooner you address your debt, the more secure your financial future will be.
Emergencies don’t stop just because you’ve retired. Without a financial cushion, unexpected expenses—like a medical bill, a car repair, or a sudden home issue such as a broken furnace—can force you to dip into your retirement savings. For example, if your roof suddenly needs a $10,000 repair and you don’t have an emergency fund, you might have to withdraw money from your retirement account, potentially facing taxes and penalties, along with the loss of long-term growth from those savings.
An emergency fund acts as a financial buffer, allowing you to handle unexpected costs without derailing your retirement plans. Aim to save at least three to six months’ worth of living expenses in an accessible account, like a high-yield savings account. This ensures that the money is there when you need it but isn’t mixed with your retirement investments. Building an emergency fund might seem challenging, especially if you’re close to retirement, but even small, consistent contributions can make a difference over time. Look for ways to reduce non-essential spending or allocate part of any bonuses or tax refunds to this fund. Having this safety net in place can help you avoid unnecessary withdrawals from your retirement savings, keeping your long-term financial goals on track.
If your expenses are outpacing your income now, it’s a clear warning sign for retirement. Living beyond your means not only prevents you from saving but can also lead to mounting debt, creating long-term financial challenges. Imagine earning $5,000 a month but spending $6,000 on housing, groceries, and discretionary purchases. Over time, this behavior eats into your savings and increases your reliance on credit, leaving you with less to put toward your retirement.
Retirement often means transitioning to a fixed income, so managing your spending now is essential. Start by reviewing your expenses and identifying areas where you can cut back, like dining out less or reducing entertainment costs. Prioritize essential needs and create a plan to limit discretionary spending.
Practicing financial discipline today helps you develop habits that will make budgeting in retirement easier. Adjusting your lifestyle before retirement will help ensure your savings last longer and reduces the risk of financial stress later. The sooner you align your spending with your income, the better prepared you’ll be for a secure future.
If you’re already finding it hard to pay your bills, retiring could make your situation even more challenging. Suppose your monthly expenses, including rent, utilities, and groceries, total $3,500, but your current income barely covers these costs. You may rely on credit cards or delay payments, which only increases financial pressure over time. Transitioning to a fixed retirement income under these circumstances can lead to even greater stress as you juggle essential expenses without enough funds.
To prepare, start by reviewing your budget and identifying areas where you can cut costs. You might consider downsizing your living arrangements, refinancing loans, or reducing discretionary spending. Increasing your income by working a side job or delaying retirement can also provide extra breathing room.
Taking these steps now can help you stabilize your finances and reduce the risk of struggling in retirement. A clear plan for covering your current bills helps ensure that your retirement income will stretch further and help you avoid unnecessary financial strain.
Major expenses don’t stop just because you’ve retired. Whether it’s healthcare, home improvements, or helping family members, large costs are likely to come up during retirement. A sudden $20,000 medical procedure or $15,000 for a son or daughter in financial dire need, can easily disrupt your financial plans if you haven’t accounted for these types of expenses. Relying solely on your retirement savings without budgeting for such situations can cause your nest egg to deplete much faster than expected.
Having a clear plan for potential large costs is essential. Start by identifying the types of major expenses you might face and consider how to cover them without impacting your day-to-day finances. Options like long-term care insurance, savings earmarked for specific needs, or creating a separate fund for large purchases can help you address these challenges without putting your retirement security at risk. Factoring these expenses into your overall strategy helps ensure that you’re better equipped to handle life’s financial surprises.
Without a monthly financial plan, it’s easy to lose track of where your money is going. If your expenses total $4,000 each month, but you’re not monitoring how much is being spent on essentials like housing and groceries versus discretionary items like dining out or shopping, you could unknowingly overspend. This lack of awareness can quickly drain your savings, leaving less to cover long-term needs.
A monthly financial plan provides structure and helps you prioritize what matters most. It’s not just about tracking your spending—it’s about aligning your money with your retirement goals. A clear plan allows you to set aside funds for necessities, allocate some for enjoyment, and adjust as needed for unexpected expenses. Without this clarity, you risk depleting your savings too quickly, potentially forcing you to cut back on your lifestyle later.
Start by listing your fixed expenses, such as rent or mortgage, utilities, and insurance premiums, alongside variable costs like groceries and transportation. Then, compare these to your income sources, such as Social Security or retirement account withdrawals. Knowing exactly how much you can safely spend each month helps ensure that your money lasts longer, giving you greater control over your finances. Even a simple plan can make a big difference in how well you manage your retirement years.
Read: Are investors throwing caution to the wind?
Inflation gradually increases the cost of living, reducing the value of your money over time. If your current retirement plan assumes that $50,000 a year will cover all your needs for the next 20 years, it may not hold up as prices rise. Twenty years from now, that same $50,000 might only buy what $30,000 does today. Overlooking inflation can leave you facing unexpected shortfalls, especially when it comes to essentials like housing, healthcare, and groceries.
In fact, Michael Landsberg warns about the assumption that inflation will go down in 2025.
Inflation doesn’t just affect everyday expenses; it can also impact larger costs, such as medical treatments or long-term care. Without adjusting your retirement strategy to account for rising prices, you may find your purchasing power diminishing significantly as you age. This could force you to make tough decisions, like cutting back on travel, hobbies, or even basic necessities.
To address this, consider retirement plans that include annual increases in your income, whether through Social Security adjustments, investments, or other sources. Investing in assets that have the potential to grow over time, such as stocks or inflation-protected securities, can also help offset the effects of inflation. A proactive approach to inflation helps ensure that your savings remain strong enough to support your lifestyle, even as the cost of living changes over the years.
An investment portfolio isn’t something you can set up once and forget. Over time, the value of different investments can shift, causing your portfolio to become unbalanced. If you started with 60% in stocks and 40% in bonds, market changes could leave you with 70% in stocks and 30% in bonds. This imbalance may increase your risk level, which could be problematic as you approach or enter retirement.
Rebalancing will help ensure your investments stay aligned with your goals and risk tolerance. As you get closer to retirement, your portfolio should typically shift toward more stable and predictable investments to help protect your savings. Without regular adjustments, you might find yourself overexposed to risk during market downturns, which could lead to significant losses just when you need your money the most.
In a segment on CNBC, Michael Landsberg recommends diversifying your portfolio outside the U.S. to take advantage of strong growth opportunities in other markets. By including a mix of global investments, you can potentially reduce risk while tapping into areas of higher growth.
Reviewing your portfolio annually or after market changes can help you maintain the right balance. Adjusting your asset allocation doesn’t mean abandoning growth opportunities altogether; it’s about finding a mix that protects your savings while still allowing for some growth to combat inflation. Staying proactive with rebalancing keeps your investments working efficiently and gives you greater confidence that your financial goals will stay on track.
Retirement isn’t just a financial transition; it’s a major lifestyle shift that can be emotionally challenging. If the idea of stepping away from work feels overwhelming or leaves you questioning your purpose, it might be a sign that you’re not fully ready. Someone who has spent 30 years in a career might find it difficult to adjust to days without the structure and sense of accomplishment that work provides. Without a plan to stay active and engaged, retirement can feel empty rather than fulfilling.
This emotional uncertainty can also lead to unintended stress. Losing the daily interactions with coworkers or the satisfaction of completing tasks might leave you feeling disconnected or unproductive. Retirement isn’t just about having enough money—it’s also about having a plan for how you’ll spend your time in a way that keeps you motivated and connected.
Think about activities that bring you joy and purpose. Hobbies, part-time work, or volunteering can help fill the gap and provide structure to your days. Joining a community group, learning new skills, or mentoring others are excellent ways to stay involved and find fulfillment. These activities don’t just keep you busy—they help create a sense of purpose and belonging that can make retirement more rewarding. Planning ahead for how you’ll stay engaged can help ensure that this new phase of life feels meaningful and satisfying.
Not knowing the details of your retirement accounts can leave you unprepared for what’s ahead. If your savings are spread across multiple accounts, you might not have a clear picture of how much you’ve accumulated or how your investments are performing. A person nearing retirement with accounts at different institutions might not realize that some are underperforming or that fees are eating into their returns. Without this understanding, it’s hard to know if your savings will be enough to support your needs.
Regularly reviewing your retirement accounts helps you stay informed and make better decisions. Check your account balances, the types of investments you hold, and whether your portfolio aligns with your retirement goals. Knowing where your money is allows you to adjust your strategy as needed, such as reallocating funds to reduce risk or shifting investments to match your timeline.
Organizing your accounts also helps you avoid unnecessary surprises, such as penalties for early withdrawals or required minimum distributions that catch you off guard. Consolidating accounts or working with a financial advisor can make it easier to track your progress and help ensure your plan stays on target.
Being informed about the status of your retirement accounts is more than a good habit—it’s a critical step toward financial security. Understanding how your money is working for you helps build confidence and gives you greater control over your future.
Retirement readiness isn’t just about money in the bank; it’s about creating a plan that supports your financial needs and emotional well-being. If any of these signs feel familiar, now is the time to take action. Addressing these issues today can make a big difference in the years ahead, helping you retire with confidence and clarity.
Landsberg Bennett is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. Landsberg Bennett and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. Landsberg Bennett and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Landsberg Bennett and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Landsberg Bennett and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.