Avoid These Ten Big Money Mistakes in Retirement

What's your retirement plan

Most of us know that a lack of planning is one of the biggest retirement blunders we can make. 
 

Financial preparation—along with making some smart adjustments along the way—is a big factor when it comes to realizing that vision of golden years filled with happiness and freedom. The key to success is getting it right. Here are ten common retirement planning mistakes to avoid so you can enjoy your post-work life to its fullest.
 

  1. Underestimating your life expectancy.  According to Fidelity Investments, the odds of one spouse in a marriage living past the age of 90 are roughly 50/50. So if you’ve saved up for 15 years in retirement and it ends up being 30 years, which is not improbable, that extra time will result in a significant financial squeeze. Increasingly long life spans reduce the percent of savings you can spend each year because those funds must last longer. Your financial advisor can make a plan for your personal retirement journey that considers the risk of living longer than you may have expected.
  1. Taking Social Security benefits too early. Although you’re eligible to begin taking Social Security at age 62, you’ll get a reduced benefit if you do so—about 25% less than you would at your full retirement age of 66 or 67 (depending upon when you were born). For each year you delay benefits past your full retirement age, you’ll receive an automatic 8 percent increase per year until age 70, and that raise will remain in effect for the rest of your life.
  1. Relying too heavily on Social Security. Many people assume that they don't need much in the way of retirement savings because Social Security will cover the bulk of their living expenses. In reality, Social Security only replaces about 40 percent of the average earner’s pre-retirement income, according to the Social Security Administration. Most people need roughly double that amount to live comfortably in retirement. So if you don't have much in your IRA or 401(k), consider extending your working years until you have a better financial cushion in place.
  1. Failing to create a realistic retirement budget. How you spend your money will change after you stop working. For instance, your daily expenses for dining out and commuting will probably decrease, but if you plan to travel, then you’ll need to account for these new expenses in your monthly budget. Once you have a realistic budget for retirement in place, it’s important to make sure you have an adequate cash flow to cover your monthly expenses in the future. A good exercise is to practice living on your revised budget for a year before you actually quit working. If it falls short of your needs, you’ll need to work longer to save more money or figure out how to reduce your monthly expenses.
  1. Spending too much in early retirement. As a follow-up to the above, careful budgeting and money management will be important in your golden years. The first years of retirement might be the best time to travel, tackle home improvement projects, and do the other things you may not be able to enjoy later on. But it’s also wise to spend your retirement savings modestly, since you don’t know how long those funds will need to last. Overspending is especially dangerous early in retirement, because you’re not just losing those funds, you’ll also be missing out on the potential returns they would have earned over the next couple of decades.
carrying debt into retirement
  1. Carrying debt into retirement. Debt is a burden at any age because it can prevent you from getting ahead financially, but it can be especially detrimental in retirement. Making monthly payments can leave you with less money to cover necessary expenses, especially if you’re living on a fixed income. It could very well could eat into your nest egg over the years and force you back to work at some point down the road. Make every effort to get all of your debt paid off before you stop working.
  1. Supporting your adult children. The problem with forgoing your own savings to help your adult children is that, while they have many more years to earn money, your working years are probably numbered. Helping your adult children is an honorable thing to do but don't give up your savings to pay their bills. Otherwise, you risk running out of money at a vulnerable time in your life and chances are they won't be able to pick up the financial slack.
  1. Underestimating the cost of healthcare. In a recent study, Fidelity Investments projected that the average couple can expect to spend in excess of $275,000 on healthcare in retirement, and that’s just for out-of-pocket medical expenses. Employers are increasingly eliminating retiree health coverage and Medicare is requiring more premiums and co-payments while failing to cover certain medical services. And it’s safe to assume that medical costs will outpace the overall rate of inflation. That’s why smart retirement planning necessitates additional health care planning, so be sure to discuss your options with your financial professional.
  1. Not planning for long term care. Long-term care poses one of the biggest threats to your nest egg. A 2017 Genworth survey found that the national median cost of assisted living is $45,000 a year, while a private room in a nursing home runs an astonishing $97,455 a year. With costs like those, even a sizable retirement nest egg can be wiped out in a hurry. And remember, Medicare and health insrucnace plans don’t cover most of the costs associated with long-term care. Long-term care insurance helps pay for adult day care, respite care, stays in Alzheimer’s special care facilities, assisted living facilities, nursing homes, and hospices. It also typically pays for in-home care like skilled nursing, rehabilitation and personal care. While many folks assume they don't need long-term care insurance, the reality is that 70 percent of seniors will end up requiring some type of long-term care in their lifetime.
  1. Believing you’ll want to work forever. You might love your career and be unable to imagine life without it, but the odds are that your ability to keep pace in the workplace will eventually recede. What sounds realistic at 50 probably won’t be the case when you’re 80. For many people, enthusiasm for work wanes with age as disability and chronic health conditions emerge. Or you might just decide you’d rather travel or spend your time with friends and family. It’s best to build a hefty nest egg in case it turns out that working in your golden years isn’t an option.
     

Whether you’re 35 or 65, it’s never too early or too late to work on your retirement finances. By avoiding these costly mistakes and focusing on smart, practical steps, you can pave the way for a bright financial future. Our friendly, knowledgeable advisors are here to help. Please contact us to learn more.
 

About FAI Wealth Management, Inc.: Located in Columbia, Maryland, FAI focuses on helping clients create the financial future they desire by protecting their wealth, making the most of their assets, and planning for life's uncertainties. The firm combines fee-only, fiduciary-driven guidance with highly personalized, consultative financial planning and investment services that enable individuals, families, and businesses to navigate complex life transitions. Founded in 1987, FAI currently manages more than $350 million in client assets nationwide. For more information about FAI Wealth Management, please visit the website at https://www.faiwealth.com or call 410.715.9200.

 

 

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