Do you want to have a satisfying and fulfilling retirement? Certainly, good health and enough…
Once you’re near retirement, you’re on the home stretch and the finish line is in sight. But while for many people this is a time to relax and pursue your favorite hobbies, it isn’t a time to ease up on your planning. On the contrary, managing your savings and your time becomes more crucial as you approach and transition into retirement. Here are some common mistakes to avoid.
1. Investing inappropriately for this stage in your life. In earlier decades, when you were saving up for retirement, you were likely advised to invest aggressively, with the bulk of your money in stocks and stock mutual funds. But as you transition into retirement, it’s appropriate to become more conservative with your savings. Although in previous years retirees were advised to keep most of their savings in bonds, certificates of deposit, and other safe investments, today financial advisors are suggesting a more balanced allocation between stocks and bonds. Current thinking is that staying too conservative with your savings increases the risk of outliving your money; some exposure to stocks is needed to provide enough growth for a retirement that may last decades.
2. Not taking full advantage of Social Security benefits. Deciding when to claim Social Security benefits is a personal decision, but you will want to consider the various factors that apply to you. If you’re a couple, don’t forget to apply for spousal benefits. You will want to compare whether it’s more advantageous to claim benefits based on your spouse’s earnings and delay claiming your own benefit.
3. Splurging on big-ticket items right away. With the children out of the house and extra time on their hands, many retirees decide to start on their dream retirement lifestyle without fully considering whether they can sustain it. Luxury cars, boats, and vacation homes are good to have, but are also high-maintenance items that can take a serious chunk out of your retirement savings and income. Investorjunkie.com suggests one way to enjoy these luxuries at a fraction of the cost is by renting instead of buying.
4. Not having an up-to-date will. You will want to keep a will up to date so that your spouse and heirs are protected and your assets are distributed as you desire. A complete set of documents also includes an advance medical directive, also known as a living will, and a financial power of attorney. Keeping these documents up to date and readily available makes things easier for your family and prevents disputes.
5. Not planning for healthcare and long-term care costs. These are typically significant expenses in retirement. Surveys indicate a 65-year-old couple can expect to spend an average of $260,000 on healthcare. HealthView’s basic costs calculator can give you a broad estimate of your healthcare costs. The more detailed AARP healthcare calculator can help you estimate your healthcare expenses.
Likewise, estimates are that over 70% of people over age 65 will need long-term care at some point. Although long-term care insurance can be expensive, it is less so than paying for assisted living or skilled nursing, should you ever need it. Not everyone will have a need for extended long-term care, but you should evaluate your situation and decide whether you should plan for that cost.
6. Not having an emergency fund. Relying on retirement savings to generate predictable income each month is a sound plan, but you will also want to have an emergency fund of cash to deal with unexpected costs such as a home repair or medical expense. Without this, you might be forced to liquidate some of your retirement savings at a bad time, such as when the stock market is down. Many financial advisors recommend having three to six months of expenses in a contingency fund.
7. Not having a plan. Preparing financially for retirement is important, but the mental preparation is just as crucial. Retirement represents a major life transition, and like all milestones it’s best to be prepared and have a plan. Once the novelty wears off after a few weeks, you’re left with the question of what to do with your time. Studies indicate the happiest retirees are those who have a sense of purpose and are contributing their time and resources to causes they believe in.