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This 1 Assumption Could Totally Destroy Your Retirement – The Motley Fool



Many seniors are looking forward to retirement, especially those who wrap up their career worries overworked and overwhelmed. But while the freedom associated with retirement is certainly something positive to anticipate, many Americans who go into retirement are excited about that prospect wind up cash-strapped and miserable fairly early on.

You need more retirement income than you think

Many people assume that their living costs dramatically drop after they stop working. But in reality, many seniors only notice a modest decline in spending. Some, on the other hand, wind up spending more in retirement than they did during their working years, and when we really stop thinking about our bills, it makes sense.

 Senior man in hat inserting card into ATM

Image source: Getty Images.

The only expenses that are likely to disappear in retirement are your commuting and job-related costs, and your retirement plan contributions. The rest of your expenses are very likely to stay the same, or even go up to a certain degree. After all, you'll need food in retirement just like you did when you were working. You will also need housing, transport, clothing, utilities, and other such necessities that are by no means a function of having a job.

And if you think your housing costs will decline a bunch if you pay off your mortgage before to retire, think again. As homes, they tend to require more maintenance, and as people age, tackling that maintenance themselves is beginning to prove challenging. Throw in the fact that property taxes have a tendency to rise over time (even during periods when home values ​​decline), and it could very well be the case that you really eliminate your mortgage payment in time for retirement, only to have it replaced with other housing costs.

Then there are healthcare and leisure to consider – two expenses that often go up in retirement. The former often rises because health issues tend to creep up and escalate as people age, and while Medicare can help pick up the tab for healthcare issues, there are a number of key services that the program will not cover. Also, Medicare is by no means free – between premium costs, deductibles, and copays, even covered services can cost you a little fortune.

Similarly, getting retired means having more free time on your hands and occupying that time is apt to cost money. As you can, you can easily spend more on being a senior than you did as a working adult.

Boost your savings while you can

Hopefully, by now you're at least somewhat convinced that retirement may end up being A more expensive prospect than you originally assumed it would be. The good news is that if you ramp up your savings game, you have a shot at accumulating enough of a nest egg to cover the aforementioned senior living costs, and then some.

Let's assume you have a good 30 years until you ' re set to retire, and that you're able to invest your savings in a manner that generates an average annual return of 7% during that period. (This should be more than doable with a stock-heavy portfolio.) Here's what your ending nest egg balance may look like based on your monthly contributions:

Monthly Savings Amount

Total Accumulated Over 30 Years at an Average Average 7 % Return

$ 200

$ 227,000

$ 400

$ 453,000

$ 600

$ 680,000

$ 800

$ 907,000

$ 1,000

$ 1.13 million

Data source: Calculations by author.

You have to admit, these are some pretty impressive numbers, especially as you work your way down the table. Therefore, do not stress about the fact that retirement will cost a lot of money. Rather, accept it, and do your best to save appropriately. If you skimp is savings under the assumption that you'll spend a lot less than a senior, you'll probably be very sorry for it after the fact.


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