Retirement is one of the biggest changes you will face in your life. Not only is it a financial challenge; your entire lifestyle will shift dramatically. There are many ways to prepare for these changes, and we dedicate ourselves to guide you through the financial preparations in particular. But of course, as with any other major life change, talking to those who have experienced it can be enormously helpful. The following six mistakes often come up in conversations with retirees, who have gained the benefit of 20/20 hindsight.
Ignoring inflation. Sure, you might not notice the increase in your grocery bill from 2017 to 2018. But we can guarantee you will notice the difference over a 20-year period. Don’t assume that all of your living expenses will remain the same for the duration of your retirement years.
Underestimating the cost of healthcare. Even if you’re in great health now, there is no guarantee you won’t have problems at some point. Most of us do, past age 65 or so. According to one recent study by Fidelity, a 65-year-old couple retiring this year will spend an average of $275,000 on healthcare over the course of their retirement. You don’t need all of that money upfront, of course, but you should definitely plan room for these expenses within your annual budgets.
Forgetting about taxes. We think of taxes as something working people pay… But if you draw income from certain types of retirement accounts or non-qualified annuities, you will still owe income taxes. Even your Social Security benefits can be taxed, if you earn over a certain threshold. Remember to consider various forms of retirement income, both taxable and non-taxable, and consider your overall income tax bracket when making these decisions.
Carrying debt into retirement. Your retirement income will stretch much farther if you aren’t saddled with revolving debts such as credit cards. Even if you need to work a year or two longer to pay off debts before retiring, it is usually a satisfactory trade-off.
Claiming Social Security too early. Yes, you’re technically eligible for Social Security benefits at age 62, but those benefits will be permanently reduced by about 25 percent. Waiting just a few more years will net you a much more generous monthly benefit. Plus, those who claim benefits before full retirement age are often subject to withholding of those benefits, when earning income over a certain threshold each year.
Failing to consider unexpected expenses. When planning your retirement budget, leave some room for error. Unexpected expenses can and will happen to most of us. You need a source of liquid assets, such as a savings account or cash value life insurance policy, that you can access in an emergency.
On that note, give us a call. We can assess various risk factors, and help you make a plan to address your risks and seek to generate an adequate income in retirement.