10 Ways to Prepare Financially for Life After Retirement
For many people, once they hit age 40, retirement and life after retirement crosses your mind. You probably have wondered what life might be like once you no longer have to work at a "job" every day.
Retirement should be a time of relaxation and enjoyment, a reward for decades of hard work. Yet, for many, the thought of leaving the workforce sparks anxiety: Will I have enough money? What happens when I need long-term care? What if I outlive my savings? How will I handle unexpected expenses?
Fear is a word some people describe as how they feel when they think about planning and retirement. Whether you describe it as fear or not, it is real, and for good reason.
According to a 2023 survey by the Employee Benefit Research Institute, 40% of retirees say they don't feel financially prepared for retirement.
Stressful Life Event
Recent research indicates that planning for retirement is now considered a stressful life event, ranking as more anxiety-inducing than divorce among individuals aged 40 to 44. Notably, nearly 10% of respondents have sought medical assistance for retirement-related concerns, and 16% report that anxiety about retirement has disrupted their sleep.
Additionally, 13% say their personal lives and relationships have been affected, while 14% note an impact on their work.
A significant contributor to this heightened anxiety is apprehension over inadequate planning. Over 20% of individuals express embarrassment about their lack of preparation, and 15% hesitate to seek advice.
Dr Linda Papadopoulos, a leading psychologist, urges people to open up about retirement anxiety and face it head-on.
The key to conquering any stressor is to address the issue by first acknowledging it, and then seeking constructive and informed support to deal with it. Retiring is one of those big steps we know we'll take at some point in our lives, and we can reduce the risk of 'retirement anxiety' by starting to prepare as early as possible.
But here's the good news: You have time to take control. Whether retirement is years away or just around the corner, planning now can make all the difference.
10 Essential Steps to a Secure Retirement
These ten essential steps can help you secure a comfortable, financially stable retirement so you can focus on what truly matters—enjoying the next chapter of your life.
1. Start Saving—Yesterday Was the Best Time, But Today Works Too
The earlier you start saving, the more powerful compound interest becomes. Even small, consistent contributions can turn into a substantial nest egg. If you are reading this, you probably are already over age 40, but encouraging children or grandchildren to plan early is a great idea.
If you start saving in your 20s or 30s, your money will have decades to grow. But even if you're late to the game, aggressive saving can still get you where you need to be.
If you haven't started yet, prioritize saving now. Look for expenses you can cut and redirect those funds into retirement accounts like a 401(k), IRA, or Roth IRA.
2. Build a Clear Retirement Plan
Having a plan gives you a roadmap to financial security. Start by estimating future expenses, including housing, food, healthcare, long-term care, and travel. Then, consider your sources of income—Social Security, retirement savings, pensions, investments, and insurance like Long-Term Care Insurance.
A good retirement guide can help you set realistic goals and create a step-by-step plan. A detailed plan can reduce stress and give you a clear path forward.
Experts suggest creating a budget for retirement just like you do while working. It's about understanding what you'll need and ensuring you have the income to support it.
3. Diversify Investments—Don't Put All Your Eggs in One Basket
Investment diversification helps protect your retirement funds from market downturns. Spreading money across stocks, bonds, mutual funds, and real estate can provide stability and growth.
As retirement approaches, financial experts recommend adjusting your investment strategy to reduce exposure to high-risk assets like aggressive stocks. Transitioning to a more conservative mix, including stable investments such as bonds and cash equivalents, can help protect your savings from market volatility. This approach aims to preserve capital and provide a more predictable income stream during retirement.
4. Eliminate Debt Before You Retire
Debt in retirement can be a financial disaster. High-interest credit cards, personal loans, and mortgages can eat away at your fixed income.
Prioritize paying off high-interest debt first, then work on larger obligations like mortgages and car loans.
5. Factor in Healthcare Costs—Because Medicare Won't Cover Everything
Many retirees underestimate healthcare costs. Medicare covers a lot, but not everything. Expenses like long-term care and dental work are not covered and can add up quickly.
A study from Fidelity estimates that a 65-year-old couple retiring today will need approximately $315,000 to cover healthcare expenses in retirement.
You can purchase Long-Term Care Insurance (ideally well before you retire) and dental insurance, and when you are on Medicare, you can add Medicare Part D for prescription drugs.
6. Build an Emergency Fund—Retirement Comes With Surprises
Even in retirement, life happens. Unexpected medical bills, home repairs, or economic downturns can drain savings quickly.
A strong emergency fund—at least three to six months' worth of expenses—keeps you from pulling money from retirement accounts at the wrong time.
7. Know When to Take Social Security
Deciding when to claim Social Security benefits is one of the biggest financial choices you'll make.
Claiming benefits at 62 means smaller monthly payments for life, while waiting until full retirement age (66-67) or even 70 can significantly increase your benefits.
8. Consider Working Part-Time or Turning Hobbies Into Income
Retirement doesn't have to mean stopping work completely. Many retirees find purpose and financial security in part-time work, consulting, or even monetizing a hobby.
Teaching, freelance work, or starting a small business can keep your mind sharp and provide extra income without a full-time commitment.
9. Adjust Your Budget as You Age
Expenses change over time. Early in retirement, you might spend more on travel and hobbies, while later, long-term care costs might take priority.
Regularly reviewing your budget ensures you don't outlive your savings. Many financial experts recommend the 4% withdrawal rule, which suggests withdrawing 4% of your retirement savings annually to make funds last.
10. Plan for Long-Term Care Before You Need It
One of the biggest financial risks retirees face is the cost of long-term care. Assisted living, nursing homes, and in-home care can drain savings quickly.
The Department of Health and Human Services reports that the reality is that about 56% of people over 65 will need long-term care at some point.
Because of medical underwriting and that LTC Insurance is much less expensive when you are younger and healthier, there is a sense of urgency that experts recommend when considering Long-Term Care insurance.
Options to prepare include:
- Long-Term Care Insurance – Helps cover the cost of home care, assisted living, and nursing homes. There are tax benefits as well. Plus, partnership LTC Insurance plans offer additional asset protection.
- Hybrid Long-Term Care policies – Combine life insurance with long-term care benefits.
- Dedicated savings for care – Setting aside funds specifically for potential care needs. However, you must set aside a lot of money and never touch it for this to work. Self-funding long-term care will cost you more because of taxes, and the burden placed on the family would still be there since adult children would have to manage it.
Use the LTC News Long-Term Care Planning Education Center to learn about options.
Take Control of Your Financial Future Today
Retirement should be about freedom, not financial stress. The choices you make now will determine whether you're comfortable, secure, and able to enjoy the life you've worked so hard for.
Start with one step today—whether it's increasing your savings, reviewing your investments, or meeting with a financial planner. Your future self will thank you.