Choices you make that will affect your entire retirement

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The decisions you make just before and after retirement can affect the quality of life throughout your retirement. While there’s plenty of flexibility in retirement planning, it’s important to get these some major things right. Yet lots of retirees take the wrong course, for various reasons. Some of these are choices made with the best of intentions that turn out to have disastrous consequences. Some are just made out of lack of planning, or making decisions in haste, or simply habit. Here are some common mistakes made when retirement is coming close.

1. Counting on being able to continue to work

Many workers plan to just stay on the job instead of retiring. A 2013 Gallup poll found that three-fourths of workers planned to keep working past retirement age, 35% out of financial necessity. One in four U.S. workers say they expect to work beyond age 70, according to a recent Willis Towers Watson survey.

Yet the reality is that more than half of workers left the workforce earlier than expected, according to a 2015 survey by the Transamerica Center for Retirement Studies. The most common reasons were downsizing or organizational changes, or health issues.

To prepare for the contingency that you may have to retire years earlier than expected, you will want to save as much as you can. Morningstar offered figures of how much you need to put away each month to accumulate $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.

Take advantage of 401(k)s and other retirement plans with employer matching. Open a personal retirement account like a Roth IRA and maximize your contributions. If you’re age 50 or over, you can take advantage of additional, catchup contributions to your 401(k) and IRA.

2. Taking Social Security at the wrong time

The decision of when to claim Social Security retirement benefits is extremely personal and depends on your individual situation, including your health history and status, estimated longevity, and other sources of income. In some cases it is advantageous to take Social Security at the earliest age of 62, which is what the majority of people do. But your benefit is permanently reduced by 25% if you claim early instead of waiting until full retirement age. If you can take a part-time job or other source of income to allow you to delay claiming until full retirement age or even later, it may be to your advantage.

3. Borrowing from your retirement accounts for current expenses

Unless it’s an emergency, it’s usually a bad idea to borrow from your IRA or 401(k). In addition to incurring non-tax-deductible interest, borrowing from your retirement account means you miss out on the growth and employer matches of the funds you took out. It also means you must pay back the funds instead of making additional contributions.

That’s why many financial advisors recommend having a cash emergency fund of three to six months of income. This fund gives you a financial cushion in case unexpected expenses arise like car or home repairs or a medical bill. It also enables you to meet everyday living expenses for a while in case you lose your employment or are unable to work.

4. Using retirement savings to help your children

Many people use their retirement funds to help their grown children with a home down payment, education, or even a wedding. It’s understandable that you would want the best for your children. And if you can afford it, then go right ahead. But raiding your retirement stash to pay for these isn’t good for anyone – you or your kids. Remember that your children can get loans and grants for school and a home purchase, but there are no loans or grants for retirement expenses.

There are feasible ways to save costs in education, such as choosing in-state tuition at local colleges or attending a community college first and transferring later to a four-year university. Your kids could also get a more affordable home and trade up later.

5. Being too conservative with your retirement savings

Sure, you want to make sure your retirement funds will be there when you need them. But avoiding the stock market because of short-term risk is a common mistake among retiree investors. But, particularly in the current low-interest-rate environment, other investments pose a longer term risk of your funds not keeping up with inflation and cost of living increases. Remember that you don’t need all of your retirement savings at once, and you’re saving for a retirement that may last for two decades or more.

Diversification of your stock investments among multiple classes of stocks, such as growth and value, and large, small, and foreign stocks, can help offset overall risk. No-load mutual funds are a good way to get instant diversification at low cost.

Some respected financial researchers even recommend increasing your stock exposure as you get further into retirement. If you aren’t comfortable picking your own funds, a trusted financial advisor can help.

6. Buying high ticket items

Once you’re retired, it’s often tempting to splurge on luxuries that you never had time for while working, like a high-end automobile, vacation home, or yacht. But people sometimes fail to consider the costs associated with owning these items.

A vacation home, for example, has maintenance costs, taxes, and insurance. Even a time-share has maintenance fees in the hundreds of dollars per year, plus occasional special fees for renovations. Additionally, there are travel expenses if the home is in a popular resort area like Florida or Hawaii. And such a home may be hard to sell if you decide you don’t want to keep it. Time-shares in particular are in oversupply.

If you want the benefit of these luxury items but don’t want the high price, Investorjunkie has an idea: rent instead.

7. Falling for a scam

Seniors are particularly attractive targets for scammers, because they are often wealthy, as well as polite and trusting. In 2015 Americans were scammed out of a reported $765 million, 37% of them ages 60 and over. Remember to carefully investigate and verify any claims and offers before investing, and don’t fall for sales pressure or urgency tactics. Consult a trusted friend, relative, or financial advisor if you’re in doubt (although relatives of seniors are too often the ones perpetrating the scam).

8. Moving before thoroughly investigating the new location

Another common temptation is to move to another part of the country, or even overseas, after retirement. Certainly you could save on living costs and taxes by relocating, not to mention enjoy a better climate and environment.

But you’d be wise to check out your planned destination before pulling up stakes. That city you fell in love with 30 years ago may be totally different now. Texas may be nice in the fall, but can you stand the summer heat and humidity?

Consider all factors that are important to you, including cultural attractions, healthcare, transportation, weather, and living environment. Then … rent for a year or two before you commit to moving. See what it’s really like to live there.

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