None of us want to work forever. Retirement is something that should be planned for and enjoyed, safe in the knowledge that you have enough money set aside to take care of your every need in your post-work days.
Sadly, this isn’t the reality for a lot of Americans. By the time we reach the year 2034, approximately 80 million people are projected to retire, and this surge of retirees presents a significant challenge for the Social Security and Medicare systems in the United States.
We have all probably voiced 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 financial mistakes that will greatly affect my retirement years? Are you prepared for retirement? Really? Do you know all the details of your pension plan (if you even have one)? Are you making the right financial choices? If not, it could be disastrous.
Here are some of the biggest mistakes that are made in retirement planning and how to avoid them:
Whether you work past age 65 is not always a choice you can control. One in four U.S. workers expects to work beyond age 70 to make ends meet. And about half of retirees leave the workforce earlier than planned, because of employment-related issues (changes in the company, being laid off, or simply lacking the skills to keep up), or health-related issues (either their own ill health or that of a loved one). Making an accurate estimate for your retirement age will give you a much better and accurate strategy for your planning efforts.
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 single biggest financial regret of Americans is waiting too long to start saving for retirement. By putting off saving for retirement, time is against you with every day that passes.
Underestimating Your Needs
If someone asked you whether you thought retirement would come with more expenses than pre-retirement, what would you say? It might make sense that when you retire, your expenses can drop significantly. No more driving to work. No more eating lunches at restaurants for meetings, etc. But this doesn’t always hold true.
In actual fact, some expenses go up, not down. Between travel, socializing, rising health care costs and so on — these things could take a much bigger 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.
The best way to avoid making mistakes in retirement planning is to start saving early, and consult with a financial planner so you can put together an intelligent strategy that results in a happy and positive experience, free of financial stress.
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