My Financial Coach is pleased to present the guest article below written by Lyle .D. Solomon, Esq., a Principal Attorney for the Oak View Law Group.
In retirement planning, the main thing people must worry about is how much savings they have acquired. Most people prepare a specific retirement savings goal and their whole life to save up accordingly. However, statistics from Gallup show that only around 43% of people expect to have enough financial stability when they retire eventually.
Many factors contribute to this uncertainty with retirement, so many people worry they will not retire. Gallup reports that 42% of individuals expressed apprehension about their potential retirement savings, while 71% of non-retired people admitted to a moderate concern. This includes people with high net worth as well.
Here are multiple signs showing that you might not be ready to retire soon. Recognizing them sooner will help in preparing for a suitable contingency plan.
Some people decide to spend their money on big expenses later in life, like going on an international trip or buying an expensive house. They wait to make these expenses during their retirement and save accordingly. However, they sometimes do not anticipate the actual estimate of different possible costs or incorrectly calculate this estimate.
For example, a person might only list their planning big expenses but not take the taxes that will apply into account. Although high-net-worth individuals (HNWIs) can typically make high-cost purchases more efficiently than an average person, they pay more taxes. Statistically, the top 1% of taxpayers incurred around 25.99% of the average income tax rate, while the bottom half of all taxpayers paid only 3.1% in 2020.
All the big expenses and the taxes on them can add up to a considerable amount. People could not save up for this in time and may decide to work even after retirement. Budgeting for such significant expenses and completing the payments sooner is vital to avoid such a situation.
Another sign that shows you may not retire in the future is your spending habits. Living within the means is a vital strategy for maintaining suitable financial health. However, if you tend to spend more money on things than what you earn, you will not have enough leftover savings for retirement. The habits to notice in this context include your lifestyle choices, like buying only branded items, eating out at luxury restaurants, etc. Putting every payment on your credit card also contributes to this problem.
People typically keep an emergency fund to pay for any unexpected costs in the future, like medical costs for sudden emergencies, accidents, etc. While this is not a requirement to enjoy a good retirement, having an emergency fund in place does help individuals.
So, if you do not have one in place, that is a bag sign for retirees. If emergencies occur later, like an accident, you won’t have enough cash flow to meet these costs. You might have to return to the active workforce without savings to meet the high medical bills.
Most people set a specific goal for savings to ensure a comfortable retirement period. When people retire, they stop getting a steady income per month. You can use those retirement savings for daily expenses if you have a retirement account. Social security is also available as a backup for passive income. However, such savings are only enough if you lead a minimalist lifestyle in retirement.
Ideally, you must save massive amounts of money to avoid compromising your quality of life during retirement. If you do not meet this estimated goal, that is a bad sign.
Debt can badly affect your financial condition. Some reasons to note are not paying bills on time, having too many loan payments due, or revolving credit card debt.
For example, a person who buys things with a credit card must pay off the due amount monthly. If they miss any payment, that amount will roll over into the next month with a high-interest rate. The added risk here is that people can continue making more purchases with their cards, further falling into a revolving debt situation.
HNWIs often own multiple credit cards. Therefore, they are at a higher risk of high-interest credit card debt if they do not maintain a healthy repayment habit. When you have a lot of debt, you must continue working longer to pay off all the dues. People sometimes push off retirement as a result. The best solution at this point is to get professional debt relief support. You can opt for credit card debt consolidation with methods like a balance transfer credit card or a consolidation program.
Many people relish their high-paying careers and enjoy the hustle. For such people, they struggle to get accustomed to retirement quickly. They miss their work life and might even feel stressed after the change of pace. These individuals cannot stop working of their own volition and might choose not to retire. Therefore, it is another sign to consider.
Most Americans plan to rely on their Social Security, overall retirement savings, and pension (if applicable) to finance their retirement period. However, the current economic climate, among other factors, makes this more challenging to achieve for most people.
You must take personal responsibility to save money and enjoy retirement on time. Address the problem areas like paying off your mortgage payments and credit card bills on time to avoid drowning in revolving debt. Given their average expenditure range, people with a higher income tend to incur higher debt amounts. For example, 22% of HNWIs with over $200,000 income report low financial security because of medical debt.
People can get professional financial help to prepare solutions like a balance transfer credit card or a debt consolidation plan to resolve leftover debts. About the above example, medical bill debt consolidation is a good solution for debt relief.
Also, develop a well-organized custom budgeting plan and follow it diligently to improve your retirement savings before the average retirement age. You can establish a side income source to get money even during retirement instead of only relying on your Social Security. Also, prepare a retirement account like a 401 (k) plan or Roth IRA to ensure enough retirement income to allow you to retire securely.
About The Author:
Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, 1998 and currently works for the Oak View Law Group in California as a principal attorney.