Get ready for these 5 threats to your financial security

“Like tossing up a coin.”  That’s Michelle, 51, a teacher from Portland, Oregon.  A guest on my new AARP podcast, Closing the Savings Gap, Michelle isn’t certain she’ll have enough money for retirement.  She fears she could make all the right financial moves and still get hit by expensive surprises. She’s not wrong, observes Ken Dychtwald, an expert on aging.  His work points to five chief budgetary pitfalls. Here’s what to look out for:

What things cost….Eggs are priced 131 percent higher today than they were in 1988.  Houses cost 194 percent more. We humans have trouble envisioning the needs of our future selves, and inflation makes it even harder to forecast our financial requirements.  Help yourself by locking down the costs that you can. For example, a paid-off mortgage (or even a fixed rate mortgage) means your monthly housing cost will never rise.

Generosity gone wild… One common threat to budgets is the desire to help grown children (and sometimes grandchildren).  “Periodic gifts to kids to help with routine items such as child care or cellphone payments have a tendency to morph into ongoing and more significant expenses over time,” notes financial adviser Mark Eskin of Stedmark Partners in Philadelphia.  

Expensive time off…. “Having a group of close friends to enjoy retirement with is a wonderful blessing,” Eskin says.  But hanging out with friends, and keeping up with them, can get costly. He says he often sees retirees spending beyond their means because they don’t realize, or fully appreciate, how much wealthier their friends might be.

Sickness (not health care)…. While health care’s cost shouldn’t be a surprise, the impact of illness still is, Dychtwald says.  Illness is “the number one reason people wind up not working as long as they think,” he adds. What’s more, most people are shocked by the cost after falling ill.  “They’re not secret numbers,” he says, “but because they’re so unpleasant, we don’t consider them.”

Happy Birthday—again….Finally, there’s longevity itself.  Though our longer life spans are well documented, Dychtwald says the extra years still come as a shock.  One in four 65-year-olds pass 90; 1 in 10 pass 95. If and when you use a retirement calculator, plug in a least “95” when asked how long you expect to live.  

Which brings me back to Michelle from the podcast.  We paired her with Manisha Thakor, a financial planner at Brighton Jones in Portland, so Michelle could get a clearer picture of her present-day financial resources and her future needs.  “It was good to see all the numbers on paper,” she says. “I had some data to help me make decisions.”

(written by Jean Chatzky for AARP Magazine, April/May 2019)