Retirement Planning for Seniors: 10 Mistakes to Avoid
Retirement financial planning the smart way
Retirement financial planning is about more than electing to put part of your paycheck into a 401(k) account. Effective retirement planning for seniors requires a multi-pronged approach that is as focused on what you should do as what you shouldn’t. To be successful in your retirement planning, you should avoid these 10 mistakes:
1. Waiting to plan for retirement
Just because you aren’t making a salary that aligns with your ultimate earning goal, that doesn’t mean you should put off retirement planning. According to a recent informal Vanguard survey, retired seniors would offer this piece of advice to younger adults: it’s never too early to start saving for the future.
2. Saving too much too soon
Planning for the future is never a bad idea, but don’t forget to plan for today. Unexpected big expenses, like home repairs and medical bills, will come up between now and the time you retire. You need to keep enough fluid funds to build up a savings account while also covering regular expenses, like your mortgage, car payments, and student loans. Also, don’t make the mistake of focusing so much on pinching pennies for when you stop working that you regret not enjoying the journey along the way.
3. Forgetting 401(k)s and IRAs are tax-deferred, not tax-free
It can be a big wake-up call if you don’t plan for taxes in retirement. Just because you’re not paying taxes on your accounts now, doesn’t mean you never will. To fully understand the tax implications of your retirement savings accounts, consult a tax professional.
4. Not buying the right insurance at the right time
Some seniors may not know that Medicare doesn’t cover everything. For instance, dental care and long-term care are not covered. According to a Fidelity retiree health care cost estimate, a 65-year-old couple who retires in 2018 needs $280,000 to cover health care costs in retirement. Deep breath. Having a dental insurance plan, and Medicare Supplement insurance can help you cover costs, like copayments, deductibles, and home health care, so you don’t deplete your retirement savings. When you explore all insurance plans available to you to find a policy tailored to your specific needs, you’ll have the peace of mind knowing that no matter what health hurdles come your way, you’ll be prepared.
5. Not planning for the unexpected
Besides unforeseen health issues, big life events can drastically affect your retirement funds. Adult children may return home, an elderly parent could require care, or you and your spouse may decide to separate. It’s hard to plan when you don’t know what you don’t know, but that’s where certified senior financial advisors come in handy. They’re used to planning for the unexpected and can help you prepare for life’s twists and turns.
6. Over-relying on Social Security
A Social Security income will help you in your retirement years, but don’t expect to live on it alone. According to the Social Security Administration, the average benefit for a retired worker is $1,410. Ask yourself: Would that cover all your expenses — housing, food, health care, leisure activities, and unexpected costs? Probably not. Senior financial and retirement planning should be more robust than simply believing, “I will have my Social Security.”
7. Forgetting about inflation and life expectancy
Over the past 20 years, the average annual inflation rate has been 2.3 percent, so it’s vital to factor it in your retirement plan. Its relevance increases significantly when you also consider life expectancy is on the rise for both men and women. A certified financial advisor knows how to calculate these two variables and suggest ways to properly plan for them.
8. Not paying down debt
With the average credit card interest rate at 16.45 percent APR, your nest egg will diminish rapidly if you’re still paying down debt when you retire. Even if your mortgage interest rate is low and you receive a considerable tax deduction, it doesn’t replace a healthy cash flow throughout the year. Retiring debt-free should be your goal to stretch your retirement account as far as possible.
9. Procrastinating on estate planning
Even if you haven’t accumulated a great deal of wealth, you still have assets that need to be listed in an estate plan. Assets include property, businesses, artwork, jewelry, and investments, like stocks and bonds. An estate planning professional can help you gather necessary documents, such as a financial power of attorney, trust contracts, and tax documents, and craft a will that ensures your family will be taken care of when you pass away. Remember to discuss your plans with your spouse and children, so they know what your plans are, and update your plans about every five years.
10. Forgetting to make a retirement “life” plan
Senior retirement planning is more than matching dollars and cents with interest rates and statistics. You want to make sure you have enough money to enjoy your retirement to the fullest. Ask yourself how you plan to fill your days after you stop working. Will you travel? Take up a new hobby? Volunteer? Big expenses like traveling are easy to plan your savings around, but what about the little costs that add up? A new hobby could require a lot of equipment purchases, or a rewarding volunteer opportunity may be located a few towns away, which could rack up gas costs. Don’t forget to list granular details and prepare how to cover them.
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