Even though the recession is getting smaller and smaller in the rear-view mirror, recent studies have shown that retirees are still having big financial problems. Specifically, more of them are being forced to take on mortgages much later in life than they had originally planned. Those mortgage payments, coupled with other types of consumer debt and medical bills, are forcing many retirees to make dramatic financial cutbacks and live a much more conservative lifestyle than they had planned for their golden years.
Why is this problem so widespread?
When the economy crashed, many retirees (and soon-to-be retirees) took a big hit to their retirement funds. Although the economy is slowly making some positive strides, elderly Americans don’t have time to wait. They need their full nest eggs now – and they don’t have them. Overall, retirees used to have the smallest amount of housing debt. Now, though, they’re becoming the demographic with the most housing debt. Thanks to home values that spent years plummeting, retirees who downsized couldn’t afford to pay cash for their new homes. As a result, they’ve had to apply for mortgages because they couldn’t afford new homes any other way.
But it’s not only people who lost a large chunk of their retirement when the stock market crashed that are having difficulties now. Another chunk of sufferers is the pre-retirees who underestimated the costs they would have to incur and didn’t save enough money to live the lifestyle they wanted during their retirement years. After all, it’s difficult to map out the rest of your life before you retire and truly save enough or understand the amount of money getting older costs!
Remember, as people age, they tend to take on new health issues, resulting in a higher cost of living that they didn’t necessarily plan for. When these bills begin to add up, suddenly many of their cash reserves disappear.
But it’s not just growing medical expenses that are causing issues. Many people also didn’t include inflation into their planning, and are surprised to find what they have saved isn’t going to cut it. The costs of other debt tend to be surprising for retirees as well. According to a study conducted by Stanford University, 50% of families over the age of 55 have a credit card. Unfortunately, many people don’t take into consideration paying off those credit cards – like how long it would take and how much the bills (and the interest!) would add to their monthly living expenses.
When people realize that they can’t live the exact lifestyle that had hoped for during their golden years, many of them decide to downsize. Some people mistakenly believe that moving into a different home will solve some of their financial worries. Unfortunately, though, they don’t always understand the total costs associated with moving. Smaller homes are not always more affordable, and when you add in moving and closing costs – plus interest rates on a new mortgage – downsizing isn’t always the best option (especially when you’re not going to get as much for your existing home as you would have gotten a few years ago).
So, what can you do to avoid a future like this?
Proper planning and seeking out the help of a professional financial advisor is the best bet for someone who is planning out their retirement. These professionals are trained to plan for the unexpected, and they can help you understand how much you truly need to save in order to live the lifestyle you want after you retire. While you won’t be able to plan for every unforeseen event, you’ll have a better strategy for building your nest egg!
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