All too often, seniors discover that they made serious mistakes in their retirement planning. Unfortunately for them, there may not be a way to undo what has already been set in stone after they retire. By learning from retirement mistakes of others, you can learn what to avoid and find better ways to ensure your retirement years are successful.
Some seniors do not think through their retirement plans and work with a financial planner to cover possible problems they may not see. Here are some mistakes you need to avoid regrets and some ideas on what you should add to your plans.
1. Understand How Long It May Be
People today often underestimate the length of time in retirement that they need to be financially ready for. Americans live years longer than their parents did, resulting in the need for more money. Many seniors have chosen to work past their retirement age of 65 to ensure they have enough.According to BusinessInsider, most men and women 70 years old will live another 10 years. As many as one-fifth of all men will live to see age 90, and one-third of women will live to 90 and beyond. Most women will live about three or more years longer than the average man.
2. Evaluate Your Potential Needs
Understanding how much you need in retirement to enjoy a lifestyle like what you have now has a considerable cost. The sooner you calculate it, even though it may not be accurate, it will give you a good idea of how much you need to save. You can find a retirement calculator at Calculator.As a rule of thumb, the AARP recommends aiming for about 80 percent of your current income. Remember to add inflation of about 3 percent each year.
When you retire will influence how much money you need to save. Social Security pays an additional 8 percent annually in benefits until you turn 70. If you wait until age 70 to start getting benefits, you will earn $1,000 or more per month than you would if you retire at age 62. It is possible, though, that Social Security benefits could be reduced by as much as 25 percent in 2035.
3. Remember the Potential Medical Expenses
Even if you are healthy now, you still must add possible medical costs. These costs will not get any cheaper in the future, but they may continue to skyrocket. The primary reason is the cost of new medicines.One company, PWC, reports that medical costs rose 5.5 percent in 2022 and another 6.0 percent in 2023. This year (2024), the company estimates that costs will increase another 7.0 percent.
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The average senior couple living from 65 to 74, according to RBC Wealth Management, will spend an average of $13,000 per year for medical expenses. Altogether, it comes to about $315,000 and does not include the cost of long-term care (Medicare does not cover it, either).
4. Start Saving as Soon as Possible
Because of the cost of retirement, it is necessary to start putting money into retirement accounts as soon as possible. Financial experts advise putting 10–15 percent of your income into your employer’s retirement plans.If your employer offers matching contributions to a traditional individual retirement account (IRA) or 401(k), put in at least enough to get the maximum amount. The matching amount is free money, enabling your account to grow much faster.
One way to help reduce the cost of your medical expenses is to get a health savings account (HSA). These plans require that you have a high-deductible health plan. The money put into an HSA is tax-deductible and grows to retirement. Withdrawals made for qualified medical costs are tax-free and have no penalties. They provide an excellent way to save money for healthcare expenses and retirement—when you can use it for any purpose.
5. Build in Ways to Save on Taxes
There are many ways to reduce your retirement taxes before you retire (and some afterward), but some must be done in advance. One way is to put some of your retirement money into a Roth IRA or a Roth 401(k). These post-tax accounts allow your money to grow tax-free for as long as you want, and there are no taxes when you withdraw the money. Also, there are no required minimum distributions.Money from a traditional IRA or 401(k) can be rolled over to a Roth account, but you must pay taxes when you do. By making smaller rollovers over several years, you can keep your tax bill lower than by transferring large amounts.
6. Reduce Your Debt
The more debt you can eliminate before you retire, the less money you will need during retirement. Getting more debt just before you retire does not make sense if you can avoid it.One way to keep your debt low is to have an emergency fund. The fund should have about six months to a year’s worth of living expenses, which is even more important if you are self-employed. It can prevent you from putting unexpected costs on a credit card that charges interest.
You may also want to reduce living costs by moving to a less expensive location. Some states do not have income taxes, but a few states will tax Social Security, pension plans, and other retirement plan income.
7. Create a Realistic Budget
Before you retire, create a budget so that you know what you can afford each year during retirement. Not having a budget is one of the serious retirement blunders to avoid that can lead to a less desirable retirement when you run out of money too soon.The best way to avoid common retirement mistakes is to get professional financial advice from an estate planning lawyer, financial advisor, or investment professional. The earlier you seek their advice, the less likely it will be that you will have regrets later.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
