Signs you're going to retire broke

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Americans fall behind on their savings for retirement for many reasons. A job loss, financial emergency, divorce or the death of a spouse can derail retirement plans.

Whatever the reason, and whatever your age, it is important to get back on track. Here are some warning signs that you are not saving enough for retirement and are at risk of retiring broke.

1. You Don't Have Enough Cash in Your Portfolio

Cash is handy to have on hand as a cushion for the unexpected, said personal finance writer Julie Rains. "If you have cash available for emergencies, you can avoid tapping a home equity line of credit or putting charges on a credit card," she said. "You may also be able to avoid selling investments when the market is down just to pay for a new roof or furnace."

Rains recommends setting aside money in a savings account that you pledge not to touch for day-to-day needs or wants.

2. Your Portfolio Is Overweight With Employer Stock

Rains acknowledges that in some cases, employer stock can make workers wealthy and give them the means to retire. But she cautioned that it can be risky to have too much of your portfolio dedicated to one security. "Consider diversifying your holdings prior to retirement so a severe decline in your employer's stock price won't wreck your retirement plans," she said.

Not only does too much employer stock expose you to market risk, but a downturn in the company can result in a job loss. So, you could lose your nest egg and job at the same time. Too much company stock is the ultimate example of putting too many eggs in one basket.

3. Balances Are Growing on Your Credit Cards

Growing balances on your credit cards are surefire signs you are going to retire broke, said Benjamin Brandt, a certified financial planner with Capital City Wealth Management in Bismarck, N.D.

Many people who aren't consistent with their family budget turn to credit cards to pick up the slack, he said. "Sure, you can always pick up an extra shift or work overtime to pay off your debts," he said. "But the bigger picture is that your lack of a budget is robbing your retirement of new contributions."

Brandt urged investors to ditch the credit cards, get on a budget and contribute large amounts of cash to retirement accounts.

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After decades of accumulating enough money to retire, it can be psychologically and emotionally challenging to spend down that money and watch your nest egg get smaller each year. "They are going to feel like they spent a lifetime accumulating this pile, and the idea of spending this down is just repulsive to them," says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of "Falling Short: The Coming Retirement Crisis and What to Do About It." "For anyone who is retiring, I would give them permission to spend their money," she says.
Saving enough to retire is not your final goal. You should also develop a plan to make that money last the rest of your life. "You need to understand how you can minimize your risk in the portfolio, but you also need a component of that strategy that gives you growth because you need to stay ahead of inflation and taxes," says Laura Mattia, a certified financial planner and wealth management principal for Baron Financial Group in Fair Lawn, New Jersey.
Social Security is a significant source of income for most retirees. Almost all retirees (86 percent) receive income from Social Security, and Social Security payments make up at least half of the retirement income of 65 percent of retirees and comprise 90 percent of retirement income for 36 percent of retirees. "Most seniors do not have much income other than Social Security," says Nancy Altman, co-director of the Strengthen Social Security coalition and co-author of "Social Security Works! Why Social Security Isn't Going Broke and How Expanding It Will Help Us All." The average monthly retirement benefit was $1,282 in December 2014.
High medical care bills don't go away once you qualify for Medicare. Although Medicare covers a large amount of the medical treatments older people need, there are several popular services that it doesn't. For example, Medicare won't cover routine eye exams, eyeglass, dental care or hearing aids. And Medicare only covers up to 100 days in a nursing home. Retirees who require additional long-term care will need to find another way to pay for it. And while many preventive care services are covered by Medicare with no cost-sharing requirements, if something concerning is found, additional tests and procedures will be considered diagnostic, and copays and coinsurance are likely to apply. "You really need to understand what health benefits you can receive from Medicare and check how it will cover any ongoing health issues," says Christopher Rhim, a certified financial planner for Green View Advisors in Norwich, Vermont.
Without a job to go to every day, you could find yourself spending an increasing amount of time alone. Some 44 percent of Americans ages 65 and older live alone, according to U.S. Census Bureau data. Unless you sign up for a volunteer position or make an effort to socialize on a regular basis, you could become bored and lonely.
If you outlive your spouse or divorce, you might find yourself single again in retirement. While just over half (55 percent) of Americans age 65 and older are married, the rest are widowed (28 percent), divorced (12 percent), separated (1 percent) or never married (5 percent), according to census data. Some of these single seniors begin meeting new people and dating. There are a variety of online dating services that cater to people over 50.
As attractive as it sounds to move to the Sunbelt, most retirees don't relocate for retirement. Only 5.7 percent of Americans age 65 and older moved to a new residence between 2009 and 2013, and the people who do move most often relocate to the same state and even the same county, the Census Bureau found. Only 1 percent of retirees moved to a new state, and just 0.3 percent went overseas. Relocating to a new community in retirement often means leaving behind family and a support system that can be difficult to rebuild in a new place.
While the act of aging is an expected part of retirement, the loss of independence typically isn't as welcome. There may come a time when you can't drive, shovel your own walkway or climb on a chair to change a light bulb. You may even eventually need help with meals and bathing. Although the beginning of retirement is often full of fun and adventures, it's also a good time to make contingency plans for later down the road when you might not be able to care for yourself.
Retirees spend over half of their leisure time watching TV. Seniors ages 65 to 74 tune in for 3.92 hours on weekdays, and those 75 and older watch TV for an average of 4.15 hours each day, according to the 2013 American Time Use Survey by the Bureau of Labor Statistics.
Compared to the overall population, retirees ages 65 to 74 spend extra time lingering over meals, working on home improvement or garden projects and shopping, the American Time Use Survey found. Retirees also spend more time reading, relaxing and volunteering than younger folks.
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4. The Majority of Your Net Worth Is Tied Up in the Home

Paying off your mortgage and retiring debt-free is a "huge accomplishment," said Taylor Schulte, a certified financial planner and founder of the San Diego-based fee-only financial planning firm Define Financial. However, he added that it can be tricky to put together a retirement income strategy if most of your assets are locked up in your home.

"If the equity in your house represents more than 50 percent of your net worth, it could be a sign that you're going to retire broke," he said.

A home is a great place to raise a family and live your life, but it is an illiquid asset. And as the Great Recession showed, housing can be a risky financial asset. It is not a good idea to tie up the majority of your net worth in your home.

5. You Forget About Inflation

Most people tend to take less risk as they close in on retirement. That isn't a bad thing, but it does present some risks, said Clint Haynes, a chartered mutual fund counselor and founder of NextGen Wealth in Lee's Summit, Mo.

"You still have to remember that inflation can have a major impact," he said. "Remember, inflation has averaged around 3 (to) 4 percent over the long term. So if you're not earning at least that much, you're actually losing ground."

So while it's fine to "take some chips off the table the closer you get to retirement," you need to understand the effect inflation can have on your purchasing power, Haynes said.

Make sure your investments provide you with the potential to earn returns in excess of inflation.

6. You Are Still Waiting for the Right Time to Invest

A lot of people are behind on retirement savings because of other pressing financial matters, said Vic Patel, the New York-based founder of Forex Training Group. He offered a warning to people in their 30s and 40s.

"You are very likely to retire broke unless you make a serious effort to start putting some money away every month into a retirement account and let those funds compound over time," he said.

7. You Load Up on Bond Funds

People purchase bond funds when they are looking for a safe way to get returns. However, bond funds can be somewhat risky when interest rates rise and the bond funds lose some of their principal value, said Charles C. Scott, president of Pelleton Capital Management in Scottsdale, Ariz.

"Picture a teeter-totter," he said. "On one end sits interest rates, and on the other end is principal value."

Since 1982, interest rates have gone down, so principal values have gone up, Scott said. "Interest rates are at or near historical lows, so when that reverses direction, values will go down."

The duration of a bond fund will have a big impact on how much-rising interest rates will damage returns.

"A fund with a duration of 6.5 years will lose principal value of approximately 6.5 percent for every 1 percent increase in long-term interest rates," Scott said. "It's just bond math. Know what will happen when interest rates go up and take appropriate steps."

8. You Take Distributions From a 401k Plan When Leaving an Employer

In today's world, it is common for workers to have several jobs during the course of a career. When you change jobs or otherwise leave an employer, it is important to manage your old retirement plan account. Your options might include:

  • Rolling your balance into an IRA account
  • Rolling your balance into a new employer's 401k plan
  • Leaving your balance in your former employer's plan
  • Taking a distribution

Taking a distribution triggers a tax bill. If you are under age 59 ½, you will pay an additional 10 percent penalty. Moreover, taking distributions can be a big retirement planning mistake, because it means this money isn't working to build your retirement nest egg. In fact, spend enough of this money and you could be left with no retirement savings.

More from Go Banking Rates:
3 Steps to Avoid Running Out of Money in Retirement
8 Reasons You Won't Retire at 65
11 Ways You're Sabotaging Your Retirement

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