2 key factors that could stress your retirement savings

[UNITED STATES] Retirement planning can be one of the most daunting aspects of financial management. The idea of securing enough savings to live comfortably after leaving the workforce is a concern many people share. Renowned financial expert Suze Orman has been offering valuable advice on personal finance for years, and recently, she highlighted two critical factors that could place undue stress on your retirement savings. According to Orman, understanding and addressing these elements are crucial to ensuring a secure financial future.

The Impact of Inflation on Retirement Savings

Inflation is a hidden enemy of retirement savings, and Suze Orman often underscores the need to plan for it. Inflation refers to the general rise in the prices of goods and services over time, which erodes the purchasing power of your money. If your retirement savings aren’t growing at a rate that outpaces inflation, you may find yourself unable to afford the same lifestyle you envisioned during retirement.

In a recent statement, Orman emphasized, “You can’t predict inflation, but you can prepare for it.” This means that while we cannot control the inflation rate, we can control how we prepare our finances to mitigate its effects. Orman suggests that one of the best ways to combat inflation is by investing in assets that tend to rise in value over time, such as stocks or real estate.

How to Protect Your Retirement from Inflation

Here are some practical steps you can take to shield your retirement savings from inflation:

Diversify Your Investments: A balanced portfolio that includes a mix of stocks, bonds, and real estate investments can help you weather the storm of inflation. Historically, stocks have outpaced inflation over the long term, making them a vital part of retirement planning.

Consider Inflation-Protected Securities: Treasury Inflation-Protected Securities (TIPS) are government bonds designed to adjust with inflation, providing a reliable source of income that keeps pace with rising prices.

Review Your Spending Habits: While this might sound simplistic, tracking and adjusting your expenses regularly can help you stay on top of inflation’s impact. Cutting back on discretionary spending today can help you boost your retirement savings.

By staying ahead of inflation, you can help ensure that your retirement nest egg retains its purchasing power and continues to support your goals in retirement.

Underestimating the Length of Your Retirement

Another factor that Suze Orman believes could stress retirement savings is underestimating how long your retirement will last. With advances in healthcare and better living conditions, many people are living longer than expected. This means that retirement may stretch out over two or even three decades, making it crucial to plan for a longer horizon than you might have initially anticipated.

Orman advises that many individuals think they’ll only need to plan for 20 years of retirement, but that might not be enough for someone who retires at 65 and lives well into their 90s. “The longer you live, the more you will need,” says Orman. “You need to prepare for a retirement that could last 30 years or more.”

The Importance of Planning for Longevity

Here are some tips to make sure your retirement savings last as long as you do:

Start Saving Early: The earlier you begin saving, the more time your money has to grow through compound interest. This is especially important if you plan to retire at an earlier age or if you expect a long retirement.

Maximize Contributions to Retirement Accounts: Contributing the maximum allowable amount to your retirement accounts, such as 401(k)s or IRAs, can significantly increase your savings over time. These accounts offer tax advantages that can help your money grow faster.

Consider Working Longer or Part-Time: If you’re concerned about the longevity of your retirement savings, you might want to delay retirement or explore part-time work. Earning additional income in retirement can help stretch your savings.

Estimate Retirement Expenses Accurately: Take a detailed look at your anticipated retirement expenses. This includes not just everyday living costs but also healthcare, travel, and other future needs. The more accurate your estimate, the better you can plan.

The Role of Health Care in Retirement

One major, often overlooked, cost in retirement is healthcare. While it’s clear that medical expenses rise as we age, many people fail to factor these costs adequately into their retirement plans. In fact, healthcare is one of the largest expenses retirees face, and as Orman points out, “A health crisis can wipe out your retirement savings faster than you can imagine.”

It’s essential to plan for healthcare costs by considering options like Medicare, long-term care insurance, and health savings accounts (HSAs). Understanding how these programs work and estimating your future healthcare needs can make a significant difference in your financial security.

Suze Orman’s advice on retirement planning is a reminder that building a secure financial future requires more than just saving a set percentage of your income. It’s about understanding and mitigating the factors that could erode your savings, including inflation and underestimating the length of your retirement. By taking proactive steps today, such as diversifying your investments, saving early, and planning for healthcare, you can help ensure that your retirement savings will be enough to support you for decades to come.

Remember, retirement is not a one-time event but a lifelong journey. The more you prepare now, the less stress you’ll experience later. And as Suze Orman wisely states, “The time to act is now.”