There are several monumental milestones we look forward to in life. Growing up, getting married, having a baby, finding our dream job…and then enjoying our golden years. Retirement should be everything you dream of, and more! So, if you’re planning to retire in 2020 (and any time after that!), part of that plan should be to avoid these mistakes and ensure you reach your goals in retirement.
Not having a financial plan in place (and not following it!)
The biggest mistake you can make is not having a financial plan in place to ensure a comfortable retirement. This is true whether you have lofty or conservative retirement goals. Failing to create a sound financial roadmap to sustain your retirement years can have a devastating impact depending on your circumstances. From continuing to save and reinvest, to making a budget and sticking to it, and factoring in emergency funds, costs of living, and other expenses—a financial plan for retirement is a must.
Deciding to take Social Security benefits too early
Here’s the deal: You can begin taking early Social Security benefits at age 62. But, in doing so you lose about 30 percent of what you’d receive if you wait until you reach full retirement age to apply. And—since data indicates that on average Americans are living longer—if you live well into your 80s or 90s, that’s quite a bit of money you’re giving up. So, unless you have an illness or some other factor in your life that fully warrants taking these benefits early, it’s financially prudent to wait as long as you can.
Forgetting to figure in health care costs
This is important for a few reasons. First, as we all know, health care expenses seem to skyrocket every year. Second, you are growing older and for some, this means you may experience some unexpected medical issues that are simply related to aging and beyond your control. Hopefully, you won’t—but it is best to be prepared than not. And a health savings account may be beneficial to help offset these costs. Your financial planner can help you determine an approximate figure to build into your financial plan to accommodate these expenses.
Not calculating inflation into your cost of living
Ok, so this one can be a doozy. Experts state the average rate of inflation is 3.22 percent a year, if that. But who really knows what that rate will be 10 years after you retire? If it’s much higher than you planned, depending on your situation, there’s not much you can do once you’re living on a fixed income unless you want to go back to work. Social Security benefits are recalculated and adjusted every year to accommodate inflation. But, when keep in mind that health care costs rise, too. You’ll be lucky if that additional income covers medical expenses, much less cost of living increases, too.
Taking on more debt
And this includes simply spending too much money on things you don’t need and haven’t adequately planned on funding. For example, maybe your dream has always been to own a second home in a different state (or country). Well, you need to make sure you can afford this and consider the fact that you may well live longer than you figured into your initial financial projections. Especially if you forgot to calculate the rising cost of living and health care costs into your retirement financial strategy. Acquiring more debt can put a considerable dent in your income. And, if you haven’t prepared for that, it can be incredibly detrimental to your quality of life as you age.
Forgetting to rebalance your portfolio
The younger you are, the easier it is to invest in stocks on the market that are a bit on the aggressive side. The reasoning behind this is that your portfolio has ample time to recover from losses and regain before you retire. However, as you’re nearing and entering retirement, you need to rebalance your portfolio. You want to discuss more conservative assets with your advisor that won’t wipeout your savings should something go wrong.
Neglecting to take care of yourself
This is so important, both physically and mentally. Obviously, we want to protect our physical wellbeing, but often people forget to take care of their emotional health, as well. There are many retirees who inadvertently become isolated once they no longer have constant contact with their friends in the workforce. Retirement can be an adjustment, even for the best prepared. So, take steps to ensure your new life includes gatherings with friends, volunteering, or some other socialization that can keep you from becoming lonely.
The above are a just few of the biggest mistakes in retirement people can make. But, depending on your unique station in life, you may need to factor in additional potential pitfalls. It is important to plan your strategy wisely and to enlist your trusted financial advisor to help. Together you can take steps to protect your retirement wealth and truly enjoy your golden years.