Retirement often catches you by surprise. The majority of workers retire years earlier than they…
You’ve worked hard for most of your adult life, and finally the time has come to retire. But a simple mistake or oversight could mess up your golden years. Here are some common mistakes in retirement planning and suggestions to avoid them.
Not having a plan
A successful retirement doesn’t just happen, it takes a plan. Yet many people put more thought into planning their next vacation than planning their retirement. You will want to know, first, what you would like to do during your retirement that might last several decades. There are online tools that can help you design your retirement lifestyle. You will also want to take a hard look at your sources and amounts of income in retirement, and also your monthly expenses. Finally, you’ll want to consider having a cash emergency fund of at least six months’ of expenses. If you find your income isn’t high enough to support your expenses, you’ll want to look into ways to bring in more income or lower your costs.
Making a move too fast
Moving to a lower-cost state, or even a foreign country, might well be the answer to funding your retirement lifestyle. The relocation page is a good place to start researching. But you’ll want to make sure there are no hidden pitfalls. States like Texas have no income tax but relatively high property taxes. You’ll also want to make sure the costs of moving and resettling don’t outweigh the cost of living savings, and that you can adapt to any cultural changes that are associated with living in a new location. Yes, there are cultural changes needed when moving to another region of the U.S. just like moving to another country.
Not taking account of healthcare
Healthcare is one of the largest costs for many retirees, but is frequently overlooked. On average, a retiree can expect $240,000 in healthcare costs in retirement. If you’re not eligible for Medicare when you leave your employer, you’ll need to find private health insurance. Also remember that Medicare isn’t free and doesn’t cover all medical expenses. You’ll need Medigap insurance and have to pay premiums and copays.
Supporting your children at the expense of your retirement
Parents understandably want to do whatever they can for their children. But you might want to reconsider if you’re giving up your retirement savings to fund a child’s college education, or holiday gifts. Your child can apply for grants and loans, and has decades to pay down student debt. You can’t get a grant for your retirement, and you don’t have decades to fund your retirement.
Deciding to retire based on your age instead of your finances
Many people decide to retire based on a certain age, like 65. But you’ll want to look at your financial situation and decide whether you can retire with the lifestyle you desire. A qualified financial advisor can help you examine your savings and expenses and decide whether you’re really ready to hang it up. If not, you might consider working longer if you can. The chances of getting another position of comparable pay are lower as you get older.
Not realizing that you might have to retire before you expect
Even if you have a plan to retire at a certain age, and you’re financially ready to call it quits at that time, you have to realize that many workers end up retiring a few years earlier than expected. A corporate restructuring might phase your job out, or your organization might move to a place you don’t want to live, or your job might change to require skills you don’t have. These are common reasons that workers retire prematurely. You will want to keep in mind that even if you want to keep working until age 70, you might not be able to.
Spending too much too fast
Many retirees’ spending actually increases after retirement. This is okay as long as your retirement savings can support it. You’ll want to know your retirement budget and have the discipline to stay within it, so that you don’t outlive your savings. Also keep in mind that major expenses like healthcare or home maintenance might come up in the future.