Five Problems People Have When They Retire

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Everyone desires the sure thing, the safest path, and the most unquestionable of choices. But life is full of uncertainty, and there is no time like the present to see this. With uncertainty comes risk. Only gamblers find risk compelling. And that's because they know how to manage it (or at least they think they do). Typically, though, no one likes risk.

Crossing the threshold into retirement magnifies the uncertainty you must deal with. Wouldn't it be to your advantage to fully understand what those experienced with retirees see as the major problems people have when they retire? Here are five such problems for you to think about and possibly prepare for.

If you don't plan, you plan to fail. The same goes for organizing your finances. Of the problems mentioned in this article, organizing your finances ranks as the one you should do well before you retire. By getting things in order in advance of retirement, you'll better prepare yourself for the choices you have to make.…Continue reading…

By: Chris Carosa

Source: Five Problems People Have When They Retire

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Income after retirement can come from state pensions, occupational pensions, private savings and investments (private pension funds, owned housing), donations (e.g., by children), and social benefits. In some countries an additional lump sum is granted, according to the years of work and the average pay; this is usually provided by the employer.

On a personal level, the rising cost of living during retirement is a serious concern to many older adults. Health care costs play an important role. Provision of state pensions is a significant drain on a government's budget. As life expectancy increases and the health of older people improves with medical advances, the age of entitlement to a pension has been increasing progressively since about 2010.

Older people are more prone to sickness, and the cost of health care in retirement is large. Most countries provide universal health insurance coverage for seniors, although in the United States many people retire before they become eligible for Medicare health cover at 65 years of age. Retirement is generally considered to be "early" if it occurs before the age (or tenure) needed for eligibility for support and funds from government or employer-provided sources.

Early retirees typically rely on their own savings and investments to be self-supporting, either indefinitely or until they begin receiving external support. Early retirement can also be used as a euphemistic term for being terminated from employment before typical retirement ages. Portfolio balances after taking $35,000 (and adjusting for inflation) from a $750,000 portfolio every year for 30 years, starting in 1973 (red line), 1974 (blue line), or 1975 (green line). Results depend heavily on what happens to the stock market in the first few years.

Remaining life expectancy—expected number of remaining years of life as a function of current age—is used in retirement income planning. Many will exceed their life expectancy, requiring income over a longer period. While conventional wisdom has it that one can retire and take 7% or more out of a portfolio year after year, this strategy would not have worked very often in the past.

Those contemplating early retirement will want to know if they have enough to survive possible bear markets. The history of the US stock market shows that one would need to live on about 4% of the initial portfolio per year to ensure that the portfolio is not depleted before the end of the retirement; this rule of thumb is a summary of one conclusion of the Trinity study, though the report is more nuanced and the conclusions and very approach have been heavily criticized (see Trinity study for details).

This allows for increasing the withdrawals with inflation to maintain a consistent spending ability throughout the retirement, and to continue making withdrawals even in dramatic and prolonged bear markets. (The 4% figure does not assume any pension or change in spending levels throughout the retirement.).

Retirement might coincide with important life changes; a retired worker might move to a new location, for example a retirement community, thereby having less frequent contact with their previous social context and adopting a new lifestyle. Often retirees volunteer for charities and other community organizations. Tourism is a common marker of retirement and for some becomes a way of life, such as for so-called grey nomads.

Some retired people even choose to go and live in warmer climates in what is known as retirement migration. It has been found that Americans have six lifestyle choices as they age: continuing to work full-time, continuing to work part-time, retiring from work and becoming engaged in a variety of leisure activities, retiring from work and becoming involved in a variety of recreational and leisure activities, retiring from work and later returning to work part-time, and retiring from work and later returning to work full-time.

An important note to make from these lifestyle definitions are that four of the six involve working. America is facing an important demographic change in that the Baby Boomer generation is now reaching retirement age. This poses two challenges: whether there will be a sufficient number of skilled workers in the work force, and whether the current pension programs will be sufficient to support the growing number of retired people.

The reasons that some people choose to never retire, or to return to work after retiring include not only the difficulty of planning for retirement but also wages and fringe benefits, expenditure of physical and mental energy, production of goods and services, social interaction, and social status may interact to influence an individual's work force participation decision.