Retirement Preparation Mistakes
Why are they made again and again?
Much is out there about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Aside from these big blunders, some classic financial missteps plague many retirees.
Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we prepare for and enter retirement.
Timing Social Security. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for higher retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. Additionally, coordination benefits between spouses may add significantly to more benefits overall.
Managing medical bills. Medicare will not pay for everything. Unless there’s a change in how the program works, you may have a number of out-of-pocket costs, including dental, and vision.
Underestimating longevity. Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.
Withdrawing strategies. You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. Some retirees try to abide by it, though this may not be reasonable or appropriate for most people.
Talking About Taxes. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to coordinate investments in multiple types of accounts. What does that mean? It means the taxable or tax-advantaged account that may be most appropriate for it as you pursue a better after-tax return for the whole portfolio.
Retiring with debts. Some find it harder to preserve (or accumulate) wealth when you are handing portions of it to creditors.
Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans.” Your children have their whole financial lives ahead of them.
Retiring with no investment strategy. Expect that retirement will have a few surprises; the absence of a strategy leaves people without guidance when those surprises happen.
These are some of the classic retirement mistakes. Why not attempt to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.