When people think about retirement, what comes to mind for most are finances. Managing investments and saving for retirement is a key aspect of retiring in comfort. Going from the security of having a regular, full paycheck, to living on a fixed income each month can be worrisome. But, there are some key aspects of preparing financially for retirement that can lend themselves toward success. Here are some key mistakes to avoid, according to USA Today:
1. Not Formulating or Following a Budget
Following a budget is vital to long-term financial success during the years a person is employed, as well as after retirement. But, it’s even more crucial during the retirement years. Retirees should list all their expenses and compare them to monthly income. Don’t forget that taxes may apply to money withdrawn from savings.
Of course, there should be some consideration for unplanned events, such as medical emergencies.
Make sure that you are not overspending and that you know exactly where your money is going each month, so you can optimize your income.
2. Relying on Social Security as the only retirement income
Many people have the misperception that they don’t need any type of savings in retirement, because Social Security income will take care of all their financial needs. But, according to USA Today, the income from Social Security only meets approximately 40% of the average retirees’ needs. Most people will require twice the amount that Social Security pays to retire comfortably. If you don’t have any type of retirement savings, an IRA or 401 (k), you may want to consider putting off retirement until you are able to save. Waiting to retire could also boost your monthly Social Security benefits, so, although waiting to retire may not seem optimal now, it could be a win-win situation down the road. The full retirement age is 66 or 67, depending on when you were born, so, putting off retirement until age 70 would result in an annual increase of 8 percent per year in Social Security benefits.
3. Not Purchasing Long-Term Care Insurance
According to USA Today, “70 percent of seniors 65 and over will end up requiring some type of long-term care in their lifetime. And that care won’t come cheap. The average assisted-living facility in the U.S. costs $45,000 a year at present, while the average nursing home costs $85,775 a year for a shared room and $97,455 a year for a private one. And that’s a lot of money later in life, when your income is relatively fixed.”
This is the reason that many financial planners encourage people to purchase long-term care insurance before they retire. If you purchase long-term care insurance when you are in your 50’s, the premiums will most likely be substantially lower.
The more pre-planning you do for retirement, the less stress you will incur once the day finally comes that you can finally quit the daily grind.