The Biggest Surprises in Retirement. Like surprises? Many readers told us they were surprised that their savings are holding up just fine, although several said that household expenses—and Medicare premiums, in particular—have been steeper than they anticipated. Indeed, most readers told us they are surprised at just how much they are enjoying retirement—even if retirement isn’t always what they expected. “I wanted something in my life that wasn’t income-driven,” she notes. But reader after reader made the same point: Retirement is tailor-made for a leap in the dark. And I was able to sleep at night.” Hit by High Costs All that said, a number of readers complained about two disagreeable financial surprises: steep Medicare premiums and household expenses that were larger than anticipated. “The vehicles always seem to need something that you always ignored because you never had time to deal with it.” The Pain of Mortality For all the “good” surprises in retirement, several readers said would-be retirees should beware of unexpected jolts. “She and my wife had been friends all those years, so my wife is still part of our life,” Mr. Sears notes. Another warning from readers: Don’t be surprised if walking away from work is more painful than you anticipate.
Saving for retirement isn’t easy, but neither is living on Social Security. My family isn’t banking on the future of entitlements, which is why we funnel 25% of our income into long-term savings. Check out the methods we use to hit our goals while preserving our quality of life.
Know how much you’ll need
We didn’t arrive at a 25% savings target by accident. When deciding how much to earmark for retirement, it all came down to maintaining our current standard of living, and the “average” numbers weren’t adding up.
Merrill Lynch’s 2017 Finances in Retirement Survey found that 30 years of post-employment living requires $738,400. Fair enough, but how does that number translate into annual income? Assuming we follow the 4% rule, which holds that retirees can withdraw 4% of their savings per year without running out of money, this figure shakes out to $24,613 per year. That’s only a little more than $2,000 per month. Ouch.
As you can see, while three-quarters of $1 million may seem like a lot of money, there’s a good chance it won’t come close to what you actually need. To hone in more closely on this figure, a good rule of thumb is to multiply your annual expenses by 25. That’s roughly what you’ll need to maintain your current standard of living through retirement.
Invest pay raises
You’re not alone if it seems impossible to prioritize retirement. Half of Americans are in the same boat, according to a 2017 survey conducted by HomeServe USA, which found that 31% of respondents had less than $500 in savings, and 20% had no savings at all.
Retirement planning can seem unimportant compared to immediate expenses, but you can’t afford to waste time. Work up to your savings goal by splitting pay increases, bonuses, and other “extra” income into emergency liquid funds and long-term accounts. This strategy allows you to anticipate life’s surprises while planning for the future.
Avoid credit card debt
Depending how you use it, credit card debt is either a dirty word or a helpful tool. We harness ours for cash rewards and frequent flyer miles. And we don’t carry balances from month to month, thereby avoiding the usurious interest rates charged on credit card balances.
We recently opened a credit card that deposits cash rewards directly into our Fidelity-managed retirement account. This kills two birds with one stone: Allowing a person to build their credit score while at the same time saving for retirement.
Buy less house
Our suburban Seattle home wasn’t much to look at in 2013, but the location and price were perfect. We paid well below the 28/36…