This assumption could totally destroy your retirement – Motley's Fool

Many seniors are eager to retire, especially those who end their careers feel overwhelmed and overworked. But if the freedom associated with retirement is certainly something positive to anticipate, many Americans who are retiring are excited about this prospect and find themselves soon enough short of money and miserable. And the reason often boils down to a problematic assumption regarding their golden years.

You will need more retirement income than you think

Many people assume that their cost of living will drop significantly once they have stopped working. But in reality, many seniors only notice a modest decline in spending. Some, on the other hand, end up spending more in retirement they did it during their working years, and when we really stop to think about our bills, that makes sense.

The only expenses that may disappear in retirement are your travel and employment expenses, as well as contributions to your pension plan. The rest of your expenses are likely to remain unchanged, if not to a certain extent. After all, you will need some retirement food just like you did when you were working. You will also need housing, transportation, clothing, utilities and other similar necessities that are in no way job-related.

And if you think your housing costs will drop significantly if you pay off your mortgage before retirement, think again. As houses age, they tend to require more maintenance, and as people get older, tackling the maintenance themselves begins to pose a problem. Add to this that property taxes tend to increase over time (even during periods of declining home values), and it may very well be that you eliminate your mortgage payment in time for your retirement, but only for the replace. with other housing expenses.

Second, health care and recreation must be considered – both of which often increase in retirement. The former often increase because health problems tend to worsen and worsen with age, and although Medicare can help pay health costs, the program does not cover a number of key services. In addition, Medicare is by no means free – between the cost of premiums, deductibles and copays, even covered services can cost you a small fortune.

Likewise, being retired means having more free time, and taking up that time is likely to cost money. As such, you could easily spend more on leisure as a senior than you did as an adult at work.

Increase your savings while you can

I hope you are now at least somewhat convinced that retirement could prove a more expensive prospect than you originally thought. The good news is that if you increase your savings, you have the opportunity to accumulate enough savings to cover the living costs of the aforementioned seniors, and even a portion.

Suppose that you have 30 years left before you retire and that you are able to place your savings in order to generate an average annual return of 7% during this period. (This should be more than feasible with a heavy portfolio of stocks.) Here's what your end egg balance might look like based on your monthly contributions:

Data source: Calculations by author.

You have to admit that these are pretty impressive numbers, especially as you move up the rankings. Therefore, do not insist that retirement will cost a lot of money. Accept it instead and do your best to save appropriately. If you skimp on savings by assuming that you will spend a lot less as a senior, you will probably end up very sorry for that after the fact.