Episode 8 - Things That Can Hurt Your Retirement

Last week, we looked at some ways to make our retirement a success.  Today, we'll go over a few ways, that if we're not careful, can wreck our retirement.  Don't let these pitfalls of retirement ruin what you've worked so hard for.

Transcript

Episode 8 – Things That Can Ruin Retirement

Hello folks and thank you for checking with us today.  I really appreciate you all and thanks for helping to make this little hobby grow.  It truly means a lot to me that so many of you are taking the time to listen each week.

Last week I gave you some information and ways to make sure your retirement is a success.  Success is defined differently by each of us, and I think it’s a personal thing.  Only you can define your success.  Failure on the other hand is pretty much universal among the retirement community.  It’s much easier to see, feel and understand when things go badly for us in retirement.

Today, I’ll explore a few items that can wreck your retirement.  Some of them are commonly self-inflicted while others can be of no fault of our own No matter which one hits us, we can mitigate the impact of some so-called retirement pitfalls if we plan and prepare.

Failure to plan:  Sounds crazy, failing to prepare for retirement, failure to plan is the number one reason we can fail in retirement.  When I was a young man, I really didn’t give retirement much thought.  Retirement age was so far in the distance, that the mentality was that of plenty of time to worry about that later.  A lot of us fall into that category.  I know that during my young work life, I worked jobs that didn’t have a 401k as an offering in our benefit menu, but even if that was available, I didn’t make a lot of money and really didn’t have much to set aside.  Or at least I didn’t think I did.  Young couples, trying to raise a family are often in a situation where it just looks like there’s no way to save. But without doing so, you set yourself up for failure when retirement day comes around.  I was reading an article on retirement statistics in a blog by legaljobs.io, that said that as of 2023, over a third of Americans didn’t believe they would ever be able to retire, and the average retirement age increased by three years for both men and women since the 1990s.  It went up from 62 to 65 for men and from 59 to 62 for women.  It’s tough to retire when you don’t start planning early and people are working longer now than ever before.  The same article says that now 77% of working Americans now have access to a 401k plan where they work, while not everyone takes advantage, it is still the number one tool for retirement savings. Although 60% of Americans expect that Social Security will be their main source of income once they retire because they didn’t save while young.  If you’re not retired yet, you still have time to put aside for your future.  I council young people whenever I can to just get started, even if it’s only a bare minimum %.  The power of compound interest is real and even a small amount goes a long way during your career.

I’m not saying any of this to be judgmental of those with little or no retirement savings and I am no financial advisor and certainly not giving out retirement advise, but I’m just pointing out the number one reason retirement can be less than ideal is having no financial plan.

Debt:  Carrying debt into retirement is certainly not ideal, as we move closer to retirement, we should be doing everything possible to get out from under monthly payments.  Debt robs us of significant number of resources that could be used to travel, build an emergency fund an in general keep us from doing things we enjoy, because we’re burdened with monthly payments.  In the same article that I referenced above, one of the most concerning statistics I’ve seen, was that baby boomers still have almost $200k in mortgage debt and another $25k of nonmortgage debt in retirement.  I don’t know about you, but to me that’s just not something that I would ever recommend for retirees.  Folks, unless you have a tremendous savings and investment nest egg, or have substantial retirement income, debt will sink your retirement.  That’s another example of failure to plan.  It’s just common sense to me.  I believe that you must be debt free or you risk wrecking your retirement.

Stupid Purchases:  In a recent AARP article, the writers pointed out several purchases or items that retirees regret and while stupid might not be right word to use, the following items are examples of things that can wreck your retirement.  These aren’t the only ones, but these are very common.  They include:

·      Boats.  This might be at the top of your list when thinking about retirement.  There’s no denying the fun boat ownership provides, and I’ve had several in my lifetime.   It might be a sailboat that you’ll use to travel to some exotic place or a simple boat to carry the grandkids out on the lake on weekends. Whatever the reason, that purchase that was to provide you with so much joy, quickly becomes something that is tying you down.  Most often, when you own a boat, you must have some place to store it.  Many HOAs have restrictions about boats sitting in your driveway or behind your house, so you will have some expense for storage.  Most of the time, it’s just not going to be that smart of a purchase unless you live on the lake and have a dock, so it’s readily available for use.  Plus, you’ll have insurance and maintenance costs not to mention the fuel to get you out on the water.    I’ve heard it said many times, “The two best days of boat ownership is the day you buy it and the day you sell it”.

·      Resort Living. Many retirees can’t wait to sell out their existing homes and many of the furnishings and take off to live in a resort community.  And there are some good reasons for doing so.  Many resort style communities have virtually unlimited amenities, such has preplanned events, elegant dining, and possibly gardening and housekeeping services.  You have an almost nonstop lifestyle of activity and socialization, but what is so much fun in the beginning starts to become less desirable as we age and begin to look for a more sedate or relaxing lifestyle.  It was said that what is a great vacation is not as nice when you live it every day and the hustle and bustle that was initially inviting can start to drag on you and become less desirable.

·      RV.  This is one that many of us dream of.  Buying an RV and touring the country with our spouse. You’ve got all the comforts of home and you’re taking it with you and no concern of lodging and where you might be able to stay the night.  You can always pull over at a truck stop or find a Wallmart along your route to park for the night.  As with a boat, you’re most likely going to have storage expense when not on the road, maintenance is never cheap with a motor home and fuel costs in today’s environment are all going to use big chunks of money each month.  If it’s something that you’re going to do for a couple of months and then get back to home base, renting for short term trips is probably a better option.

·      Dream House.  This is another one that people so often underestimate as something that can wreck your retirement.  May times what starts out as a downsized home in a retirement community or a community in a coastal area for example can begin to be a money pit.  That’s all well and good if you have the cash to do so.  But everyone underestimates the cost of building and wit rising inflation building supplies could cause you to overrun your budget.  Maybe a little upgrade here or another one there and suddenly, we’ve gotten ourselves into more than we planned for, and the idealistic dream of our dream home becomes a retirement regret.

·      Buying a timeshare.  I bet you’ve been approached to take a weekend in some desirable locale with a small requirement that you go on an hour’s tour of the development.  Sounds harmless enough and it’s certainly a great way to check out some area that we might not otherwise visit.  Along with that tour is going to come a high-pressure sales pitch at the end.  It’s easy to see their point and it’s often easy to get into this guaranteed vacation to share with friends and family.  But…. Along with the initial investment there’s going to be ongoing maintenance fees, utilities, taxes and before you know it. Oops I ‘ve gone and done it again… Over budget and now you’ve got additional strain and stress on your retirement life.  You’ve probably heard the term, but a timeshare is “just a hole to through your money into” and most purchasers regret ever doing it.

·      Dream Cars.  I like nice cars.  I’ve had my share of nice cars, some might be considered fancy, and some probably weren’t practical over the years and while each one gave me great joy for a while, it’s not something that is advisable in retirement.  Call it a midlife crisis if you want, but many folks retire and immediately purchase some type of fancy car, maybe a convertible or something luxurious, but that thing is depreciating in value the minute you sign the paperwork and drive it off the lot.  It’s not going to be worth what you paid for it from that moment on and if you borrow money for this type of purchase you have just dented your cash flow negatively and are risking wrecking your retirement with debt.

While these purchases might not be stupid, they’re just not in line with a stress-free retirement and sometime cause regret, maybe friction with a spouse and detract from a sound financial plan in retirement.  Hey, if you have plenty of cash laying around, go for it, but I’s just not the thing that most of us should be doing.

Living Above Your Means:   Another sure-fire way to wreck your retirement is spending without a plan and underestimating what your monthly expenses are.  Without a realistic retirement budget, it’s just too easy to overspend and start depleting your retirement savings too soon.  Your detailed budget should cover all your necessary monthly items like insurance, taxes, utilities, food, and hopefully a little entertainment and you’ll need to consider inflation.

Again, I’m no financial advisor and I’m not giving you any financial advice, but without a roadmap, you can’t get to where you need to be.  Not only do you need to have a sound budget, but you must continue to plan and adjust as you go through your retirement and revise your budget accordingly so that you can live with your means or within the framework that you have. 

Failure to have an emergency fund:  Failure to plan for unforeseen expenses and not having an adequate emergency fund can quickly wreck your retirement.  A rule of thumb has always been to have approximately 3 to 6 months of expenses in the emergency fund, but honestly that might not be enough in today’s inflationary environment. There are multiple items that can hit you with no warning and cause you to dip into your retirement savings long before you are ready to start withdrawals.  Medical emergencies are a big one and can be quite unexpected.  Accidents, illness, and unexpected surgeries are medical emergencies that can wipe out an inadequate emergency fund.  Home repairs can be major ones and you need to plan well in advance for the expensive items, such as a new roof or a new HVAC unit.  I faced this firsthand recently.  I got out of bed on Thanksgiving morning, walked out into the hallway and new immediately that I had a problem.  I checked the thermostat, and it was set to 70 degrees fare height, but the inside temperature was only 67 or so.  After going through a troubleshooting process and checking all the obvious issues that could have caused the furnace to shut off, I realized I need to call a repair service to look and of course after he’d been under the house for what seemed like an eternity, he delivered the bad news.  The inducer motor in my 18-year-old furnace had a broken shaft and was no longer readily available.  They were still available, but it wasn’t worth the cost to repair the old furnace, it was more cost efficient to just replace it.  So, after a few cold days in the house we got it replaced, but if I had not had an emergency fund sufficient to cover the cost, it could have been catastrophic.  Car repairs can be very costly and depending what brand you have, some repairs can cost as much as the furnace repair, I just had, so you need to make sure you have an emergency fund, and you need to review it often as inflation and costs rise to make sure you’re covered and adjust your budget where needed.

Today’s episode was not meant to bum you out, but rather just to remind us that we need to be on our toes during retirement.  This is the best time of our life, and each day should be a joy and an exciting journey, but we still must plan and navigate the pitfalls of life.  It can be a lot harder to recover from a mistake or an unexpected expense in retirement, than it was during our working life.  So be vigilant, prepare and when possible get ahead of some maintenance, take care of your health, and try not to get into anything too risky.  In doing so you’ll be prepared to enjoy these, our happy golden years.