With the decline in Social Security benefits, pensions and other retirement funding options, many people are making it to retirement age with much less money than they will actually need. Not only that, but many times they are making mistakes once they reach retirement that are hitting them hard in their pocketbooks. Today we’ve put together a list of some of the worst mistakes that can be made during retirement with advice (of course) that can help you to avoid them as much as possible. Enjoy
Many people assume that there will retire at a certain age but the fact is that there are many things not in our control that could change this. If you’re forced into early retirement, have health issues that crop up that force you to retire early or face layoffs at your company, those last few years that you were counting on for more savings will be wiped out. Indeed, you may find yourself back out in the real world and trying to find a job in an already tough job market. This is one of the reasons that planning for retirement should begin as early as possible.
No matter how great their tips may be or how much they tell you that they are ‘great with finances’ it is still better to talk with a professional about your finances rather than a friend or family member, especially during retirement, so that you don’t wind up making mistakes that not only set you back financially but also hurt your relationship with friends or family. When it comes right down to it, there’s no reason to not talk to a financial planner or retirement specialist because the cost is actually quite reasonable. The value that you can get from a consistent plan that your professional financial advisor puts together for you cannot be understated.
Starting to collect Social Security payments too early is a mistake that many retirees make. The reason is that many don’t realize that their benefits are on a changing scale and starting to collect them later can actually mean a large increase in the amount of money that they will receive. In fact, the longer that a person waits to start collecting Social Security the greater that their initial annual income will be. Starting to collect Social Security at the age of 70 will nearly double the amount of money that you will receive if you start collecting at age 62.
One mistake that many retirees make, simply from lack of understanding, is that they overlook the tax consequences of taking money out of their IRAs either too early or too late. Both of these scenarios can increase tax penalties and severely deplete your retirement funds. Knowing the rules about withdrawing your money from specific types of accounts is vital. Spreading out your withdrawals over several accounts is usually the best idea to avoid a heavy tax hit. (This is also another reason to talk to a professional retirement specialist.)
Failing to understand how distribution affects their retirement accounts is another mistake that happens all too often with retirees. If you withdraw money from your 401(k) to early or improperly roll it into a new plan you can be hit with penalties up to 20%. It is absolutely vital to understand how to remove and transfer funds from your retirement accounts and when to do it as well.
One huge mistake that many seniors make in retirement is failing to take into account the cost of future healthcare. While Medicare and Medicaid were set up to help there are many things that these insurance plans do not cover. The fact is, there is no real way to predict how much money you’re going to need in order to cover any health problems that you may have in the future. If you retire at age 65 and live until you are 90 you will need to have 25 years’ worth of money to not only take care of living expenses but also health expenses. Simply put, living expenses may increase slightly over the last 25 years but the cost of your healthcare will more than likely increase greatly.
Retiring with a large amount of debt is a common mistake that, in many cases, is unavoidable. If you find yourself on the brink of retiring but still have a good bit of debt to pay off, you may consider delaying your retirement in order to pay this debt off before you start. If you are in good health and can do this it’s a great option but it would still be better to pay off your debts as soon as possible so that you don’t have the risk of carrying them over into your golden years.
One last mistake that many retirees make is that they refuse to downgrade their lifestyle in order to stretch their retirement funds. Experts will tell you that a good number to shoot four is 25%, meaning that you should reduce your living expenses by at least that much once you retire. This may mean selling your large home and moving into a smaller one, moving to a state with lower taxes, purchasing a vehicle that is more fuel-efficient and spending less on things like travel and entertainment.
As you can see there are quite a few mistakes that you will need to avoid as retirement gets closer. We hope that the information we provided in this blog today has been helpful and that it has given you some insight into what you need to do (and not do) with your retirement planning. Please be sure to come back and visit us again soon as we’re always here giving out excellent financial advice on all sorts of different topics. See you then.