Retiring is exciting. You’re starting a new phase in your life. Comprehensive retirement planning is crucial to ensure a smooth transition and financial stability. No longer will you have to get up early to go to a job you may not even like. Instead, you can do the fun activities you’ve never had time for. But there’s a financial side to retiring you need to know. Investing involves risk and should be carefully managed to protect your retirement savings. Here are eight mistakes financial planners say too many people make when retiring.
Just because you’re eligible to take Social Security at 62 doesn’t mean you should. Your payment will be 25 percent less than if you had just waited until you reached full retirement age. That age depends on your birthday. Consider other financial options until you reach full retirement. Additionally, proactive tax planning can help you determine the most tax-efficient time to start taking Social Security benefits, optimizing your income and managing your tax burden during retirement.
If you start working again after taking your benefits at 62, you’ll actually lose some of your Social Security benefits. You’ll be penalized one dollar for every two dollars earned. That comes down to an annual income limit of $21,240. You’ll be able to earn $56,520 the year you reach retirement age. But you won’t be penalized after you reach retirement age. Check with Social Security to see what your full-time retirement age is. It’s based on your birthday. Additionally, it's important to understand that investing involves risk, which should be considered when planning to work after taking Social Security benefits.
When you retire, you’ll be on a fixed income. If you carry debt into your retirement, you’ll be vulnerable to financial hardship. Work to pay off your debt before you retire, and work on paying off your mortgage before you retire since that’s probably your biggest expense. Additionally, shifting to fixed income investments, like bonds and certificates of deposit, can help preserve capital and minimize risk, given the shorter time frame to recover from market downturns.
Although you don’t want to be overly conservative, this is not the time to invest in speculative stocks. It’s too late in the game to lose your savings. Instead, work with a financial advisor to diversify your portfolio so all your eggs aren’t in one volatile basket. Remember, past performance is not indicative of future results and should not be the sole basis for investment decisions.
Just like you planned for retirement, you now need to develop a plan on how you will spend it. Many retirees deplete their 401 (k) before they reach 85. This could shorten them on cash when they need it most. The standard rule is to withdraw four percent a year from savings. This will minimize the chances of you running out of funds. But that is a guideline. You can also withdraw based on the performance of your investments. Comprehensive retirement planning is crucial in developing a sustainable savings withdrawal strategy.
You’ve worked hard all your life and want to enjoy retirement. Many see this large nest egg and think they have the funds to have a good time. They buy RVs or take big vacations. But avoid this temptation. This money must last you for ten to 20 years. And depleting your money beyond the interest it’s earning will hurt the principal. It could leave you with nothing after a few years. Additionally, investing involves risk, and it should be carefully managed to avoid depleting retirement funds too quickly.
If you have multiple retirement accounts, be aware that they are taxed differently when you withdraw. You could pay more taxes than you need to. Consult with an accountant or tax attorney to find the most cost-efficient way of dealing with taxes during retirement. It’s a complicated matter so you should explore all your options. Additionally, incorporating fixed income investments, such as bonds and certificates of deposit, can help manage tax liabilities by providing more predictable income streams during retirement.
Long-term care expenses can be the biggest threat to your retirement finances. Assisted living facilities typically cost $148 per day or a monthly expense of $4,500. Almost 70 percent of 65-year-olds will probably require some form of long-term care services. Or assistance through their remaining life. Medicare and most health insurance don’t pay these expenses. It’s all on you. If you run out of money, Medicaid must pick up the difference. But this could leave a spouse without funds. Comprehensive retirement planning is crucial to ensure you have adequate funds for long-term care.
One of the most critical mistakes you can make when planning for early retirement is overlooking potential shortfalls in your retirement savings. Regularly reviewing and assessing your retirement savings progress is essential to ensure you’re on track to meet your future needs.
Not contributing enough to your retirement accounts, such as a 401(k) or IRA, can lead to a significant shortfall in your retirement savings. Additionally, failing to take advantage of employer matching contributions can result in a substantial loss of potential retirement funds.
To address a retirement savings shortfall, consider increasing your contributions, exploring alternative retirement accounts, or adjusting your investment strategies. A certified financial planner can help you create a personalized plan to address any shortfalls and ensure a secure financial future. By staying proactive and regularly reviewing your retirement savings, you can avoid the common pitfall of falling short when you need it most.
Ignoring healthcare and expense planning can lead to significant financial stress during retirement. Healthcare costs can be a substantial expense, and failing to plan for them can quickly deplete your retirement funds.
It’s crucial to factor in healthcare costs and other essential expenses when creating your retirement income plan. Medicare and other health insurance options should be carefully considered to ensure you have adequate coverage. Remember, Medicare doesn’t cover everything, so you may need supplemental insurance to fill the gaps.
A comprehensive retirement income plan should account for all your expenses, including healthcare, housing, food, and transportation. Working with a financial advisor can help you create a plan that ensures a sustainable income stream throughout your retirement. By planning for healthcare costs and other expenses, you can avoid financial strain and enjoy a more secure retirement.
You’ve worked hard and want to enjoy the years ahead. But you need to have your financial ducks in a row before you leave that job. Make your plans for both retirement funds and how you’ll spend them. Remember, past performance is not indicative of future results. Comprehensive retirement planning is essential to ensure a secure and fulfilling retirement.
