It’s been a part of the American Dream for most of the last century: a house, two cars, two and a half children, a good job, and a retirement package awaiting us in the golden years of retirement. Between 2014 and 2034, approximately 80 million people are expected to retire, and this surge of retirees presents a significant challenge for the Social Security and Medicare systems in the United States. As retirement approaches, Baby Boomers are taking stock of their financial decisions along the road to their golden years.
We have all heard the common questions and concerns as we get older:
- Will I outlive my money?
- Can I use some now and still save some for later – maybe even leave some for my kids?
- Should I stay in my home? Move to a retirement community? Relocate closer to my children?
But the biggest question should be this one -- how can I avoid making poor decisions that seem right at the time but will later come back to haunt me?
Are you prepared? Do you know all the details of your pension plan (if you even have one)? But long before you close the chapter on your working days, are you making the right financial choices? If not, they could end up in disastrous outcomes.
Here are some of the biggest mistakes that are made in retirement planning, and how to avoid them:
Underestimating Retirement Savings
It would make sense that when you retire, your expenses can drop significantly. But this doesn’t always hold true. In actual fact, many expenses go up not down.
Between travel, socializing (dinners and lunches in restaurants), rising health care costs, etc. are the things that could take a larger bite out of your pocketbook.
It would be a good strategy to count on spending in retirement close to what you already are. Think of it this way — in areas where you’ll be saving on lower expenses, you’ll be balancing the scales by spending more in other places.
You’ve been putting off that great overseas excursion for a long time. Now that you have the time, take it.
Choosing the Wrong Retirement Age
One in four U.S. workers expects to work beyond age 70 to make ends meet, according to a recent survey. But, whether you work past age 65 is not always a choice you can control. About half of retirees leave the workforce earlier than planned, because of employment-related issues (changes in the company, being laid off, or lacking the skills to keep up), or health-related issues (either their own ill health or that of a loved one).
Not Saving Enough
The single biggest financial regret of Americans is waiting too long to start saving for retirement. By putting off saving for retirement, the clock is ticking against you with every day that passes.
You’re entitled to start taking retirement benefits at 62, but you probably shouldn’t. Most financial planners recommend waiting at least until your full retirement age. Waiting until 70 can be even more beneficial.
Let’s say your full retirement age, the point at which you would receive 100% of your benefit amount, is 66. If you claim at 62, your monthly check will be reduced by 25% for the rest of your life. But hold off until age 70, and you’ll get a 32% boost in benefits – 8% a year for four years – thanks to delayed retirement credits. (Claiming strategies can differ for couples, widows, and divorced spouses.)
The best advice is to start saving early and consult with a financial planner so you can put together a smart, well-structured strategy.
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