The middle class, which represents 55% of the U.S. adult population and earns between $50,000 and $199,999, has many retirement fears, ranging from running out of money to healthcare.
Forty percent of the middle class is nervous about outliving their savings, and financial experts say there’s good reason to be fearful.
With people living past the life expectancy of 77.5 years and Social Security in serious trouble, there is a strong chance of outliving your nest egg.
“To mitigate this risk, they should try to maximize their 401(k) and IRA contributions and diversify their portfolio,” Mindy Yu, CIMA® and director of investing at Betterment at Work, told GOBankingRates. “They may also want to consider auto-escalate contributions, as this mechanism helps prioritize retirement as a personal finance goal while your income increases over the years.”
Yu added, “People should also reinvest dividends and rebalance regularly to accumulate growth and to keep their investments aligned with their goals and risk tolerance.”
Forty percen of the middle class are worried about long-term healthcare, which is often a financial blind spot for many when planning retirement.
It’s not easy to think about, and it can be hard to prepare for it, but according to Emily Irwin, head of the Wells Fargo Advice Center, long-term healthcare should be approached from two angles.
“You want to not only plan for the financial perspective but also the daily life management perspective,” she said. “Naming an agent under a long-term health care directive to make health care decisions on your behalf if you were unable to do so is key.”
Irwin added, “Similarly, naming a financial power of attorney to act on your behalf for financial transactions like bill pay, taxes or otherwise can offer continuity of financial management. Be sure to name a trusted contact since these documents can be especially powerful.”
Over 67 million American retirees receive a monthly Social Security check that many count on to get by. However, the program is running out of money, and without changes, future generations won’t receive 100% of their benefits.
“Currently, the Social Security Board of Trustees projects the program cost to rise by 2035, so that taxes will be enough to pay for only 75% of scheduled benefits,” the Social Security Office and Retirement of Disability Policy stated on their site.
Thirty-nine percent of the middle class are concerned Social Security will not exist or will drastically change. However, Eric Mangold, certified wealth strategist and founder of Argosy Wealth Management, had some more input on the matter.
“If the Social Security trust fund were to disappear completely, it would imply that no action would be taken to correct the matter between now and 2035” he said. “It seems more likely that political pressure would be placed on Washington to fix the problem before it reached that point.”
If funds were to run out, Mangold explained, “The program would still be taking money out of paychecks and using that money to pay those collecting payments. It’s uncertain what might happen to payments, but Social Security has suggested they will continue.”
It’s hard to say what Social Security will look like down the road, but it’s best to think of the program as a way to supplement your income in retirement and not solely rely on it, said Steven Kibbel, financial planner, entrepreneur and chief editorial advisor at Gold IRA Companies.
“Focus on diversifying your income streams — things like IRAs, annuities and investment portfolios — can help ensure you aren’t left in a bind if Social Security benefits are reduced,” Kibbel stated.
Alzheimer’s or dementia is a fear that 33% of the middle class have, and Kibbel explained how vital it is to plan for this during retirement.
“It’s not just about health care but also financial management,” he said. “Setting up a power of attorney or a trust is key to protecting yourself. I always tell clients that early preparation can ensure their finances are managed properly, even if they can no longer do it themselves.”
Retirement should be a time to spend with family, embark on new adventures and enjoy life, but 30% of the middle class worry about not providing for their loved one’s basic needs.
If you’re at risk of not covering basic needs like housing and food during retirement, scaling back on your lifestyle and evaluating wants versus needs is vital.
To help plan, consider Deferred Income Annuities (DIAs), said Angelo Crocco, owner of AC Accounting.
“DIAs can provide a sense of peace in the long run. You can lock in a guaranteed income,” he explained. “These products allow you to lock in a guaranteed income stream that can be useful when you hit 80 years old.
“This can be a life-saving hack, especially when healthcare costs rise, as you’ll have a steady income.”
Michael Robustelli, private wealth advisor at Northwestern Mutual, added, “When considering retirement, you can focus on control, options and flexibility. We can’t control what is happening to us — the stock market, inflation, tax rates, etc. But if we have the tools in our plan, we can combat the anxiety that comes with the unknown and uncontrollable.”
There’s a lot to consider when it comes to retirement, but planning and hard work make financial security possible. Also, sitting down with a qualified professional who can map out a solid plan can help alleviate financial fears.
