Avoid Common Retirement Planning Mistakes
Much is written about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Some classic financial missteps have been known to plague retirees, too.
Calling them “missteps” may be a bit harsh, as not all of them represent errors in judgment. Either way, becoming aware of these potential pitfalls may Middle-Class Millionaires avoid falling into them in the future.
Leaving Work and Taking Social Security Too Early
As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments.The FRA varies from 66-67 for people born between 1943 and 1959. For those born in 1960 and later, the FRA is 67.
Underestimating Medical Bills
One report estimates that a the average couple retiring at age 65 can expect to need $315,000 to cover health care expenses during the course of their retirement, even with additional coverage such as Medicare Part D, Medigap, and dental insurance. Medicare will not pay for everything. Unless there’s a change in how the program works, you may have a number of out-of-pocket costs, including dental, and vision. Having a strategy can help you be better prepared for medical costs.
Underestimating Longevity
Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.
Not Having a Strategy for How Much to Withdraw Each Year
You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. Others withdraw 7% or 8% a year. Each person’s situation is unique but having some guidelines can help you prepare.
Overlooking Retirement Tax Strategies
It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its “preferred domain.” What does that mean? It means the taxable or tax-advantaged account that may be most appropriate for it as you pursue a better after-tax return for the whole portfolio.
This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your investment strategy for tax considerations.
Putting College Costs Before Retirement Costs
There is no “financial aid” program for retirement. There are no “retirement loans.” A financial professional can help you review your anticipated income and costs before you commit to a long-term strategy, and help you make a balanced decision between retirement and helping with the cost of college for your children or grandchildren.
Retiring with No Plan or Investment Strategies
Expect that retirement will have a few surprises; the absence of a strategy can leave people without guidance when those surprises happen.
These are some of the classic retirement mistakes. Why not attempt to avoid them? Take a little time to review and refine your retirement strategy with an advisor here at Kendall Capital.