8 Mistakes You Must Avoid When Retiring 1.
Not having a savings plan It maybe human nature that makes people postpone
planning for their future.
When you’re at the height of your career, it’s much easier and a lot more fun to plan
a vacation - for example, than sort out a retirement plan.
It’s necessary to start planning right away before, the time comes to hang up your hat.
If you don’t plan now and take all the necessary actions, you won’t be able to live out your
golden years as you’d wanted.
Leaving this kind of thing to random “Do It Yourself” retirement calculators would
be simple enough, but find an expert financial advisor to help you make wise financial plans
for the future.
You can’t put this off forever.
There are quite a number of excuses people give when asked why they haven’t made a
plan yet.
They are somewhere in the lines of there are too many expenses at the moment and there
isn’t anything left over to save.
Others say that their finances are a mess and some claim they don’t have enough to
get started.
There are some who feel it’s too soon or it’s too late and a few have been heard
saying they don’t need a savings plan.
Some of these reasons are true, and others can also be termed as excuses.
However, there are some ways to get around all this.
When it comes to saving it’s never too late or too soon and you don’t need a lot to
get started, the important thing is that you start.
2.
Claiming social security too early In the US, you’re entitled to start taking
retirement benefits from the age of 62, but if you can hold off tapping into it do so.
67 is the age most financial planners recommend before accessing your social security.
Waiting till 70 is even better.
But if you do choose to claim social security earlier then you’ll have to contend with
the fact that your monthly check will receive a 30% deduction for the rest of your life.
But if you decide to wait, you get an 8% boost in benefits every year between the age of
67 and 70 owing to delayed retirement credits.
This is a substantial increase and an annual return of 8% is better than what you’re
likely to get from the stock market.
Deciding the right moment for you to reap benefits is a sort of balancing act.
If you wait too long, you give up years of extra income but on the other hand, if you
can increase your income in later years why not?
If you think about it, delaying until 70 has benefits that outweigh if you live past 82.
The hard part about making up your mind is that you’re not always guaranteed that you’re
right.
Because most of us don’t know how long we’re going to live.
3.
Avoiding the stock market Shying away from stocks because they’re
risky is a big mistake many investors make when planning for retirement.
It’s true that the market has its ups and downs, but for a very long time stocks have
returned an average of close to 10% annually.
The reasons investors avoid stocks is because they fear incurring losses.
Some say they don’t have sufficient knowledge on the stock market to get started and others
say they don’t have enough funds.
But in truth all this could be worked out with help from others who know what they’re
doing.
Sometimes you just need to take a leap of faith.
You might think it’s best to avoid the market so as to keep your money safe.
But this comes at the expense of low returns and truthfully, you haven’t gotten rid of
the risk but instead, you’ve shifted your risk to the possibility of your money not
keeping up with inflation.
4.
Ignoring long-term care We try as much as we can to eat the right
foods, exercise and go for regular check-ups so as to remain as healthy as possible.
But with age comes several ailments that may befall us and a serious illness might take
a toll on your mind and body.
When the day comes that you need long-term care, be prepared for the huge sums of money
you’ll have to pay.
Assisted living and nursing homes cost a lot and even if you think you have enough to cover
the costs, it can easily be wiped out in a short period of time.
It’s important to note that, Medicare doesn’t cover a majority of the costs linked to long-
term care.
It is estimated that close to 70% of today’s 65-year olds in the US will need some kind
of long-term care for an average of about three years.
And of course, the cost of this kind of care can be quite high.
And although many people are aware of such possible expenses not much is done as to how
they’ll plan for them with others not knowing where to begin.
Some retirees may reduce these costs by reaching out to family members for help, but those
who aren’t able to or would rather not depend on their loved ones, cover these expenses
in one of these two ways.
The first is the one where you reach into your pockets, and in this case one will need
to have a substantial amount of savings to be able to cover this.
The good thing about this approach is that you only pay for what you might need, which
appeals to wealthier individuals who don’t want to pay for insurance they may not use.
The other one is long-term care insurance.
It’s not easy for most people to gather huge sums of money at a go, and this approach
allows them to get the quality care they need without having to liquidate their assets to
pay for it.
To get a more affordable premium it’s advisable to purchase a policy at your fifties and early
sixties.
You might end up not needing it, but at least you would turn a potential financial surprise
into a predictable expense.
You may feel great now, but who knows what the future might bring.
That’s why it’s important to figure out how to pay for long-term care that you’ll
most likely need in the future.
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5.
Underestimating future costs A lot of people get it wrong when it comes
to estimating how much they would need for their daily needs after retiring.
The amount of money you think is enough might not be.
The best way to plan for a better future is to think about how your future might look
like together with the costs and come up with an estimate.
Coming up with an estimate is not that hard.
You could make use of the available online calculators to estimate the amount you’d
need during retirement.
Another way to get a realistic estimate is to compute today’s budget and factor in
inflation.
The important part is to make correct contributions during your working years and review the plan
on a yearly basis.
Most people strive to reach a particular figure, but save even more if possible.
The future is unpredictable and it’s better to save more than you originally planned to
as a precaution.
6.
Retiring too early
Is there a right age to retire?
This is a question a lot of working individuals ask themselves at some point in their career.
If you decide to retire in your late fifties or early sixties, you might need to make your
money last for about three decades or even more and for some this money has to cater
for both them and their spouse.
For someone to be retired that long they’ll need stacks of money.
For a lot of folks, after years of working hard, they reach a point in their lives where
they just want to quit their job, travel the world, and enjoy what life has to offer.
Quite a lot make the mistake of retiring too soon, and some of their reasons are they’re
bored with what they do at work, they lost their job, and they’re tired of the long
commute and so on.
Others choose to retire once they reach the target they’d set for their retirement savings.
Waiting to retire might be a better choice because you can increase your eventual retirement
income significantly by delaying retirement, even if it’s by a couple of years.
If you fail to take the time to really work out the math on your savings you might end
up struggling financially in your seventies and eighties.
Lots of people regret making this mistake feeling they would enjoy a much better retirement
if they’d waited a little longer.
We all want to be happy, healthy and satisfied with life and some have the impression that
retirement is the best way to go, to help them reach their goals.
But will you be able to fulfil these goals if your full retirement isn’t practical
in your fifties and sixties?
Ask yourself if you’ll still be happy and fulfilled, if it turns out that you’ll need
to work longer than you’d planned initially, as you plan for retirement.
Or maybe you’ll have to spend less than you did during your working years.
Answering these questions might assist you in coming up with a more practical and successful
retirement plan that works for you.
7.
Neglecting asset planning Planning for your assets is not only reserved
for the well-off.
Even if you have modest assets like a house, car or a bank account, it would be for the
best if you drafted a will in which you specify who will receive what and who will be responsible
for distributing your money and possessions.
If you pass away without leaving a will, your assets will most likely be subject to the
laws of the state.
It becomes a very trying period for your family as they try to sort out the matter in court.
And if you already have one, retirement is the time when you can review it and possibly
make changes because a lot could have changed over the years.
You could have gotten divorced, remarried, become richer or poorer.
You may now have grandkids that you didn’t have before, and would like to include in
your will.
So, do the right thing and put your affairs in order before it’s too late.
8.
Carrying High-Interest Debt Into Retirement Credit card balances and similar high-interest
debt can really chip at your wealth over time.
It would be a huge mistake to allow yourself to be dragged down with this kind of debt.
A great way to ensure longevity of your retirement savings, would be to develop a plan as soon
as possible to clear all debts, before you step into retirement.
Paying high-interest rates could really drain your finances especially during retirement
when you’re living off a fixed income.
For this reason, you have to prioritise paying as much high-interest debt as you can before
you stop working, and you must refrain from accumulating any new credit card debt if possible.
The first instinct a lot of people have is to stop using their credit cards completely,
but as much as it is possible to pay off new balances and still pay off old debt, just
take a good look at your spending habits.
If you can’t pay for new spending out of your pocket and cover your existing minimum
at the same time, you’ll never make progress with your current balance.
Once you’ve figured out how to avoid any future debts, take a look at which credit
card has the highest interest rate.
You’re still going to pay the minimum on the other balances but more money should be
put into the one with the higher interest rate.
Once this is done, move on to the next card with the highest interest rate.
So, try your very best to pay your credit card debt before retirement, because paying
them back at a point when you’re no longer earning a high income can be really stressful.
Well folks, thanks for watching, have a great day and I’ll see you all in the next one.
Take care guys.