19 Signs You’re Not Prepared for Retirement

Retirement should be a time for relaxation, hobbies, travel, and family—when you can finally reap the rewards of a lifetime of paid work. However, with medicine improving our health and life expectancy and the current economic climate, you might not be as prepared for retirement as you think. Here are 19 sure-fire signs that indicate you still might not be ready to leave the workplace behind.

Insufficient Savings

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One of the most obvious signs you aren’t retirement-ready is having a nest egg that isn’t big enough to fund your lifestyle until you die. According to the Wall Street Journal, “The typical saver—across all age groups—is only prepared to have 78% of the income they need to cover expenses in retirement.”

Lack of Retirement Accounts

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Retirement accounts like a 401(k) or an Individual Retirement Account (IRA) offer the best opportunities for capital growth, so it’s not a good idea to retire without one. Investopedia says it’s about more than just having enough savings—you need to have your money safely and smartly invested in a way that reduces taxes while maximizing returns.

No Emergency Fund

Emergency fund
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Even the most diligent budgeter can’t accurately foresee future emergencies, like family members needing financial assistance, medical bills, or home repairs (Edward Jones). To avoid putting your retirement at risk, you need an appropriately sized emergency fund for any such eventualities, or else you may find yourself short.

Too Much Debt

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Seeing as you’re not going to have a reliable paycheck ever again, it seems unwise to enter retirement with credit card debt, mortgages, or unpaid loans. Make sure you significantly reduce or eliminate your debts before contemplating retirement; otherwise, your pension will have to stretch to cover the repayments and interest.

No Investment Knowledge

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Money Helper states, “When you’re retired, income-generating investments can be a good option for investing your pension pot. They include bond funds, income funds, and multi-asset funds.” If you don’t understand investing, you should consider holding off on retirement until you’ve educated yourself, or you won’t know how to make your money work for you.

No Clear Retirement Goals

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If you feel aimless and undriven, it might not be the best time to retire. The basis of all good retirement planning is setting clear goals, so wait until you have specific targets for things like travel, healthcare, and lifestyle—then you’ll know how much money you’ll need to meet your requirements and keep yourself content once you stop working.

Ignoring Healthcare Costs

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Fidelity estimates that the average retiree aged 65 in 2023 will need $157,500 saved (after tax) to cover healthcare expenses after they quit working. If you fail to account for rising healthcare costs and increased reliance on medical care as you age, you’ll deplete your savings much faster or, worse, seriously neglect your health.

Delayed Retirement Planning

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The earlier you begin retirement planning, the better your chances of building a substantial nest egg are because you’ll have more time to save and reap the rewards of a good investment. Starting earlier means your money starts working for you as soon as possible, allowing for more affluent and comfortable ‘golden years.’

No Long-Term Care Plan

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No one wants to end up in a care home, but that may be a reality you have to face one day. Kiplinger says that nursing home or in-home care can be expensive and prolonged, quickly exhausting your pension pot. You need to factor this in if you want to receive the best care without relying on family members.

Over-Reliance on Social Security

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State benefits are designed to replace a portion of your pre-retirement income, so relying on them to cover your entire retirement is foolhardy. If you want to maintain your standard of living, supplement social security payments with additional savings or even a ‘side gig’ to prevent financial stress once you leave full-time paid employment.

Underestimating Inflation

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Everything gets more expensive over time, and the value of each dollar you save before retirement will decline with every passing year as prices rise. Unfortunately, once you stop working, your salary doesn’t increase to account for this, so ensure you use a realistic inflation estimate to calculate how much more money you’ll need over time.

No Retirement Budget

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Good financial planning starts with a realistic, comprehensive budget that’s strictly adhered to. American Century recommends a well-structured budget that allocates funds for various expenses and contingencies. Retiring without such a budget will result in you over-spending or being unable to afford unforeseen costs.

Overspending

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If you like to shop and live beyond your means before you retire, chances are you’ll have much less money saved and are far more likely to deplete what little you do have before you die! Ensure you curb your over-spending tendencies before you retire and practice being more frugal, or you’ll be searching for employment before you know it.

Not Seeking Professional Advice

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Not everyone’s a financial mastermind, so don’t be afraid to seek professional help regarding tax planning, budgeting, and investing for retirement. A financial advisor will be able to steer you in the right direction and ask the important questions, ultimately making your money go as far as possible. Just make sure you choose a reputable one.

Overlooking Tax Efficiency

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Investec Wealth explains that a failure to use tax-efficient strategies when managing your finances can result in unnecessarily high tax burdens that deplete your ‘nest egg.’ So-called ‘tax-efficient investing’ includes Roth IRA conversions and tax-loss harvesting, which can significantly reduce the tax you’ll ultimately have to pay.

No Estate Planning

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If you’re retiring, you’re probably over 65, so it’s essential to start thinking about how you want your assets distributed and any inheritance clauses you need to legalize. Good estate planning will not only ensure your wishes are followed after you die, but it can also minimize associated taxes, leaving more of your wealth for your loved ones.

Neglecting Diversification

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Take care if your investment portfolio concentrates on a single company or sector! Putting ‘too many eggs in one basket’ can expose you to significant losses should the company fold or the industry suffer unforeseen problems. Always invest across various ‘asset classes’ to ensure you won’t be caught out if the worst happens.

Disregarding Longevity Risk

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According to Our World in Data, “In 1900, the average life expectancy of a person was 32 years. By 2021, this had more than doubled to 71 years.” Make sure you consider this trend when planning when to retire and how much money you’ll need until you die. Failing to account for a longer lifespan could leave you in poverty if you reach 90 or 100!

Missing Retirement Milestones

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Planning for retirement should start early in your 20s, and you should have met certain percentage income requirements as you get older. If you haven’t been meeting these targets, you probably aren’t ready to retire or will need to seriously downgrade your lifestyle once you do.

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