Sometimes, all it takes is one mistake to sabotage your retirement. In some cases, seniors aren’t even aware of them before it’s too late. And it’s not always the case of not budgeting enough as misinformation or forgetting certain things can also lead us down the wrong path.
Here are 7 blunders that happen most often and that financial advisors insist on tackling as early as possible. With them out of the way, the chances of your retirement being a worry-free chapter of your life increase exponentially.
Failing to plan for medical expenses
A lot of seniors believe and hope that Medicare will take care of all their health-related risks once they turn 65 — that’s when the program kicks in. You mustn’t forget about premiums and deductibles, not to mention out of pocket costs.
All in all, estimates show that a couple over the age of 65 needed $285,000 in 2019 alone in order to cover medical costs. That’s an impressive sum, and it’s expected to be on the rise, so don’t let it blindside you.
Retirement can be expensive and while leaving the workforce sounds like a good reward after decades of hard work, it might not be that easy. In order to still manage your costs, you should prepare for a little more work, either part-time or remote.
If you are an expert in your field you could consider consulting work. Alternatively, your hobbies and passions can help bring some money if you know how to monetize them. But most importantly, you’ll want to check the rules for working while receiving Social Security. Check online and make plans on how you’re going to transition before it’s too late.
Celebrating retirement with a big purchase
Celebrating retirement with a big purchase has become so prevalent that it’s almost the norm nowadays. A lot of seniors hold off on doing this as they near retirement in order to save as much money as possible. Then, once the big switch is made, they finally whip out the wishlist to mark the occasion.
It’s a good idea to hold off for a while at least. We recommend you see what your expenses look like on a monthly basis before spending too much money at once. Tracking everything you spend either through an online tool or even in a spreadsheet or a planner will give you an idea of how much your savings could last.
Every expense should be taken note of and once you’re comfortable with your finds you should consider that big gift for yourself.
Helping out adult kids
More and more adult children find themselves seeking help from their parents. The economy is not what it once was and while it’s alright to be understanding, you also have to think about your own future.
After all, who will have more time to plan for retirement, you or your kids? Instead of handing out cash, help them make saving and spending plans instead. Offer them the tools they need in order to become gradually independent.
Claiming Social Security too soon
Your full retirement age (FRA) is determined by your year of birth but a lot of seniors find themselves forced to claim Social Security earlier. Sometimes it’s for reasons beyond our control, such as health problems or layoffs at work. Instead of giving in to these circumstances try to look for at least some part-time work.
Considering the fact that if you claim too soon you could lose 20-30% of your benefits, you should definitely check your account on the Social Security Administration website for all the data surrounding your benefits.
It’s better to prepare ahead and know what the future holds. Surprises could lead you down a dark path, ruining your plans entirely. But staying informed is a step in the right direction that could help you mitigate damages.
Forgetting about taxes
You can’t avoid taxes, no matter what. You can navigate them by using various types of accounts depending on your savings, but you won’t ever be able to escape the IRS.
Consider IRAs or 401(k) plans which will force you to withdraw minimum amounts of money each year once you reach the age of 70½ or you’ll be faced with penalties. If you also use a Roth IRA your taxes will be deduced the year you make payments instead of when you take money out. This can help with the burden of taxes when you’re no longer working, so it’s a good idea to have some savings prepared in this type of account.
It’s a good idea to stay informed about the pros and cons of each plan. Talking to a financial advisor would be a good idea if you’re still unsure of how to manage your money.
Ignoring estate planning
Thinking about your where your possessions and money will end up once you pass away is a heavy hitter for a lot of people but it’s a good idea to make a plan before you retire. If you haven’t made a will, now’s the time to do so. Alternatively, you could update your will to better match your current situation.
It’s best to do this before you’re too ill or old but no matter the case it’s also a good idea to sign a durable power of attorney naming someone who will make financial, legal and medical decisions when you won’t be able to.
Not only will you be worry-free, but your heirs will also have one less worry to think about during otherwise difficult times.