When planning to retire we always hear the term “able to.” “Hopefully, we’ll be able to retire”, “I want to be able to retire on my terms” phrases like that. We know that we need to save money and have it grow but we don’t always know if we are making the right decisions.
There are plenty of missteps out there that you could make when planning for retirement. Redwood recently released the 13 most common mistakes that people make when they are ten years from retirement that is a helpful tool. I want to highlight a few here that I think are critical to address.
Taking Social Security at the wrong time. Whether it is waiting too long or taking them too early a mistake in when to take your social security could make a big impact on your overall retirement options. There are plenty of resources out there to help you calculate when the ideal time to take your social security payments and you can always go to ssa.gov and explore your options. Working with a professional can also help to provide some conviction behind your decision.
Underestimating medical bills. Medicare unfortunately does not pay for everything. Unless there’s a change in how the program works, you may have several out-of-pocket costs, including dental, and vision. Medical costs can throw a monkey wrench in even the most well thought out plans. It is important to speak with a Medicare specialist to understand what costs will fall back on you in retirement. This way you can plan for them. Also, if you are planning on retiring before 65, it becomes even more important because healthcare premiums will be hefty for you.
Underestimating longevity. Think about outliving your money for a second. Isn’t it terrifying? According to ssa.gov around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. Having a 20- or 30-year retirement is becoming more common and outliving your money would be detrimental after having saved for so long during your working years. When approaching retirement be realistic about how long you will be around to spend your money.
Adhering to withdrawing strategies. You may have heard of the “4% rule,” in the past. It was an older strategy stating that you should take out only about 4% of your retirement savings annually to not touch the principal. The problem with that thinking is that it wraps everything up into one tidy strategy that can’t benefit everyone. Some people like to withdraw more money earlier because they are more active early in retirement. Some people choose to go on bigger trips every other year, so their rate is 2% one year and 8% the next. The key is that there is no withdrawal strategy that is one size fits all and you should explore what withdrawal strategy would work for you.
Having all taxable accounts. Retirement plans offered by your employer are so important. Especially with pensions becoming more scarce, the onus falls on us as individuals to put money away. Unfortunately, most retirement money is taxable later in retirement. It is a good idea to have both taxable and tax-advantaged accounts in retirement. Explore the Roth option if your retirement plan has it and also look at the benefits of having a Roth IRA.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Retiring with high-interest debts. It can be tough to live on a monthly income when a chunk of your money is going to debt, especially high-interest debt. When getting ready for retirement you want to be sure to at a minimum restructure your debt to a manageable payment. Ideally, you would work to pay off the debt but we know that may not be possible. Taking a proactive approach to getting interest rates down, and subsequently lowering your payments, can go a long way to helping you in retirement.
Prioritizing college costs over retirement costs. You can’t take a loan out for retirement or apply for “financial aid” when the time comes. In a perfect world, you would be able to pay for your child’s education but that may not be in the cards. Your children have their whole financial lives ahead of them. That does not mean that they should throw caution to the wind and take out numerous loans, but they should also
Retiring with no strategy. You wouldn’t go on vacation without having a plan. Most of us don’t even leave the house without a plan of how we are attacking the day. The planning process for your day is much quicker but you do it quickly without thinking. “I’m going to leave work, grab something from the store and then pick the kid up from the sitter.” Believe it or not, that’s a plan. If you are going to have a strategy for these things, shouldn’t it be just as important to have one for the rest of your life? Obviously, challenges will present themselves in retirement but having a plan will keep you better equipped to meet those challenges.
These are a handful of the mistakes you can make. Why not attempt to avoid them? Take some time with a professional to review and refine your retirement strategy. It could make the difference between taking the vacations you want and having to stay home. Even more so, it could make the difference of you having to go back to work versus staying “retired”. We know there are many parts that you need to coordinate, and we welcome the challenge. Schedule your commitment-free 15-minute discovery call to see how we can help you reach your goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.