What are top concerns for Retirees today?
Many retirees today are grappling with a range of issues that seem to have never been quite so prevalent. These range from the impact of inflation to the challenge of managing healthcare costs, as well as the fear of outliving their savings. These concerns may seem overwhelming and detrimental, but that doesn’t mean that nothing can be done.
Concern #1: Inflation and Rising Costs
Inflation is one of the most pressing worries for retirees. As the cost of living continues to rise, the value of your retirement savings can erode, leaving you with less purchasing power over time. Nearly 90% of retirees are concerned that inflation will diminish their assets, impacting their ability to maintain their standard of living (Schroders).
With the rising cost of living and inflation, it may feel like your dollar stays pretty much the same these days. If you take another bite out of that by paying taxes, it may be possible to see $100k in your 401(k) reach far less.
Being Tax-Focused Can Help: One of the key strategies is optimizing your investment portfolio to ensure it remains aligned with your long-term goals, even as economic conditions change. By focusing on tax-efficient investments, you can help maximize after-tax returns, which can offset some of the effects of inflation.
Moreover, a tax-focused financial advisor may be able to work with you to develop a tax-efficient withdrawal strategy. This involves carefully planning when and how to draw from your retirement accounts in a way that minimizes your tax liability, thereby preserving more of your income for essential expenses. For example, they might suggest utilizing Roth IRA withdrawals, which are tax-free, during high-inflation periods, ensuring you keep more of your money in your pocket.
Concern #2: Healthcare Expenses
Healthcare costs are often a significant concern for retirees, with 85% of retirees worried about higher-than-expected medical expenses (Schroders). Many anticipate that Medicare will cover most of their healthcare needs, only to find that out-of-pocket costs, including premiums, deductibles, and long-term care expenses, can be substantial. Without careful planning, these costs can quickly deplete your savings.
How Being Tax-Focused Can Help: First, look at maximizing the benefits of tax-advantaged accounts like Health Savings Accounts (HSAs). Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free, making them an excellent tool for managing healthcare costs in retirement.
In addition to HSAs, a tax-focused financial advisor may be able to help guide you in selecting the right income plan based on your healthcare needs and financial situation. They can help you understand the tax implications of different plans and how to coordinate benefits with other insurance you may have. For those facing significant medical expenses, an advisor may also identify potential tax deductions, such as those for unreimbursed medical costs, which can reduce your overall tax burden.
Concern #3: Outliving Savings
About 40% of retirees worry that their funds will run out (List With Clever). Given the increasing life expectancy and the unpredictability of future expenses, it’s understandable that many retirees are anxious about whether their nest egg will continue to last through their retirement.
How Being Tax-Focused Can Help: One of the most important tax-focused plans one can play is to create a sustainable withdrawal strategy. This involves determining the optimal way to draw income from your various retirement accounts, considering factors like required minimum distributions (RMDs), tax rates, and market conditions. By strategically managing these withdrawals, you may be able to help better ensure that your savings last as long as possible.
An advisor might recommend withdrawing from taxable accounts first, allowing your tax-deferred accounts to continue growing. They may also suggest converting some of your traditional IRA funds to a Roth IRA, which can provide tax-free income later in retirement. These strategies can help reduce your tax liability and preserve more of your savings over the long term.
Additionally, a tax-focused advisor can help you explore investment vehicles designed to provide stable, long-term income. Annuities, for instance, can offer a guaranteed income stream for life, reducing the risk of outliving your savings. Your advisor can help you choose the right type of product and integrate it into your broader retirement plan.
Retirement brings with it a unique set of stresses and challenges, but with proactive strategies in place, these challenges may be better managed. A tax-focused financial advisor, such as the Founders of Oxford Advisory Group, Christopher J Dixon, and Samuel Dixon, may be an invaluable partner in this journey, offering guidance and experience to help you better navigate concerns like inflation, healthcare costs, and the fear of outliving your savings. By optimizing your tax situation and making informed decisions, you may enhance your financial security and better enjoy the retirement you’ve worked so hard to achieve.
Oxford Wealth Group, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information about Oxford can be found by visiting the SEC site www.adviserinfo.sec.gov. and searching by our firm name. We are a financial services firm that utilizes insurance and investment products. Insurance products and services are offered and sold through Oxford Advisory Group. Oxford Wealth Group, LLC and Oxford Advisory Group are affiliated but separate entities.
Employee Benefit Research Institute. (2020). “Retirees Face Financial Shocks: A Study on Retirement Spending and Financial Security.” Employee Benefit Research Institute. Retrieved from https://www.ebri.org/
Transamerica Center for Retirement Studies. (2021). “Retirement Security: Trends and Issues for Retirees.” Transamerica Center for Retirement Studies. Retrieved from https://www.transamericacenter.org/
National Retirement Institute. (2022). “Retirement and Inflation: Understanding Retirees’ Concerns.” National Retirement Institute. Retrieved from https://www.nationwidefinancial.com/
Fidelity Investments. (2023). “Healthcare Costs in Retirement: An Overview of Expected Expenses.” Fidelity Investments. Retrieved from https://www.fidelity.com/
