When was the last time you got a do-over? Maybe you took a mulligan in your last game of golf, or you had the chance to revamp a project at work for better results. Unfortunately, financial mulligans are few and far between, and are almost nonexistent when it comes to retirement. When the topic of life after a 9-to-5 comes up, most people immediately think of their slim savings for retirement. While we should probably all be saving more for our golden years, money isn’t the only thing to plan for to have an enjoyable retirement.
The average American is feeling more confident about their ability to afford a comfortable retirement, according to the Employee Benefit Research Institute’s 2016 Retirement Confidence Survey. However, only 21% of respondents were “very confident” their savings would be enough to cover their expenses after they left the workforce for the golf course. Growing confidence is great, especially after record lows during the Great Recession. But that doesn’t change the fact that the luster of the so-called golden years fades quickly when retirement isn’t quite as rosy as it was portrayed to be.
While retirement is supposed to be a relaxing reward after decades of work, it can only become that if you put in some planning ahead of time. No matter how far away that retirement date seems, it pays to be thinking about these 13 things now.
1. Not saving enough money
It’s likely the most obvious factor, but also the most vital. If you haven’t saved enough money for retirement, everything else becomes much more difficult. It used to be that saving $1 million was a benchmark for a comfortable post-work life, but most experts will say that might not be enough anymore. However, it’s also true that many people enjoy their lives while saving less than that figure. The truth is, only you can determine how much you’ll need to save for your own retirement.
To do that, however, you do need to know the facts and have a plan to face them. For instance, you’ll need to save much more than you have in the past for health care costs, which are only likely to increase in future years. By some estimates, most retirees will need at least $220,000 to cover medical expenses if they retire at age 65. You might lead a relatively healthy lifestyle, but that can change much faster as you get older.
Saving for the unexpected takes many forms, and isn’t just related to medical care. As in all of life, retirement savings should also include a healthy emergency savings fund to cover any type of financial pitfall. “A well-constructed plan, whether with advice of a professional or not, needs to account for success, as well as challenges and failures,” Tash Elwyn, president of Raymond James & Associates, told USA Today.
2. Leaving the workforce too early
Once you pull the trigger on leaving your job, it’s hard to make a comeback. Retirement might seem like a rite of passage once you hit a certain age, but there’s nothing guaranteed about your income if you haven’t made a plan for it. “Of those who retire voluntarily, many do so with no real understanding of how much it will cost to live in retirement or when or how the retirement money will come,” Thomas Murphy, a certified financial planner at Murphy & Sylvest in Dallas, told CNBC.
Of those who left the workforce and tried to return after realizing they needed to continue working, many encountered a problem finding a job that offered an adequate salary or benefits, CNBC reports, and many dealt with hiring managers who were concerned about their age.
Unfortunately, even those who do stay in the workforce are at a disadvantage. According to Teresa Ghilarducci of the Schwartz Center for Economic Policy Analysis, older workers are often overlooked for promotions and on-the-job training, and begin to experience a decline in pay between the ages of 55 and 59 regardless of their education level. “Working longer is a retirement plan like winning the lottery or dying earlier is a retirement plan. Being able to work longer is not a plan. It’s a hope,” she told Slate.
Continuing to work isn’t just a financial decision, however. Many retirees say they keep a job in some capacity to keep their minds sharp, remain physically active, and maintain a sense of purpose.
3. Not having a plan for your free time
In a short e-book for Amazon, author Alex Potrero writes that he lost his identity when he retired from a fast-based career as an executive in the federal government. “The biggest mistake I made when I retired was that I did not really know what I would do with all my time after I was, in fact, retired,” he wrote. “I had grown accustomed to routine of a full-time job and when I retired I did not have a routine in place to adequately replace it.”
Many people still at work dream of a retirement that includes sleeping in, reading a book, and spending more time at the beach. However, those activities will quickly become unfulfilling if they’re not supplemented with a social life and a sense of purpose. “You need a reason to get out of bed every morning, get dressed and go do something,” Murphy told CNBC.
Murphy notes that many people, men in particular, lose many of their social connections after retirement, because many of their friends are at work. Before you retire, take steps to solidify those relationships outside of work, or make the time to forge new relationships before you pull the plug on your career. It can also be beneficial to start a new hobby or two before you retire, or begin a volunteer opportunity.
4. Not planning for your retirement goals
Travel is often a key factor in many people’s retirement plans. However, getting the timing right is essential. All too often, people put off travel plans for later, only to realize health or other factors prevent them from enjoying it.
“I’ve had dozens of clients that put off traveling, waiting until ‘the time was right’ only to let illness and other life issues prevent them from embarking on all the trips they put off for years,” said Jeff Rose, a certified financial planer at Alliance Wealth Management in Carbondale, Illinois.
As long as you’ve budgeted for that travel in the first place, and have a plan for responsibly spending your money, there’s no need to delay your retirement goals. “There are two times in retirement: when you are healthy and when you are not,” Murphy said. “Plan accordingly. Travel and see whatever your heart desires. Plan to do so in the first five years of retirement. If you are healthy enough to travel after that, consider yourself lucky.”
5. Not adjusting to the required lifestyle
While taking that long-desired trip to Alaska is great, purchasing a yacht and staying in five-star hotels for the rest of your days isn’t always advised — even if your previous career afforded you those luxuries in the past. When the paychecks stop, you automatically begin to live a life on a fixed income. Period.
While retirement affords you many luxuries like extra free time, it sometimes also requires scaling back — whether it’s in terms of possessions or spending. This can be especially difficult for people who enjoyed incredibly successful careers, and aren’t used to adjusting their lifestyles for a smaller income.
“Naturally, they envision a life in retirement that is just as lavish as when they were employed — business trips that include five-star hotels — whereas, in the real life of retirement, to fit their financial resources, retirement may require that they change their standards and change expectations,” Elywn told CNBC. “That adjustment can oftentimes be challenging for successful business people.”
6. Drawing Social Security too early
To reap the most rewards from your retirement, it’s important to become knowledgeable about your post-work benefits. That could include knowing how your pension works, calculating your expected income from investments, and learning how you’ll be covered through Medicare. Most notably, however, this retirement education should include knowing when it’s best to start drawing from your Social Security account.
Depending on Social Security for all of your retirement costs can be disastrous, and you might reap more money if you delay your withdrawals. “A lot of people have the perception that Social Security would take care of them,” Clarence Kehoe, executive partner in accounting firm Anchin, Block & Anchin, told USA Today. Originally, that was supposed to supplement one-third of your retirement income, along with personal savings and pensions (which are largely nonexistent today.) In other words, it was never supposed to be the full funding for your golden years.
If you’re in poor health or run into financial obstacles, you might need to start relying on Social Security as soon as you’re able. But if you can hold off, the reward can be significant. “From my perspective, most people are better served waiting until closer to 70 to activate Social Security benefits. The difference in payout even from age 68 to 70 is often as much as $1,000 per month,” Jason Flurry, a certified financial planner at Legacy Partners Financial Group in Woodstock, Georgia, told CNBC.
As with all financial planning, your situation will be unique. The Social Security Administration offers several tips to help you decide when you should begin withdrawing Social Security benefits.
7. Not retiring earlier
Yes, most logical wisdom says that retiring as late as possible can be a financial benefit. However, some retirees who carefully made a plan for their golden years say their only regret is not retiring earlier. According to Time, half of retirees between the ages of 62 and 70 with at least $100,000 in assets wish they had retired earlier.
“As people age, they realize that during the time right before they retired they still had as much energy” as they did in the years during their career, David Cruz, a senior managing director at New York Life, told Time. As that energy wanes, retirees sometimes regret wasting that potential time off when they could have been spending it with family, traveling, or fulfilling other retirement goals in full health.
Bottom Line Inc. reports that many retirees naturally spend less during their retirement than they did in previous years. Those dollars saved could have translated into an earlier retirement age without even realizing it. As long as your health care costs are accounted for, most older Americans spend less on goods and services as they age, which could allow you to enjoy a great number of years in healthy retirement.
8. Not downsizing earlier
Many retirees eventually move into a smaller home, begin passing along mementos to family members, or sell off the possessions they no longer need. After doing so, many say they wish they had decluttered their lives earlier.
“It’s so liberating being free of all that extraneous stuff,” one retiree told Bottom Line Inc. “I just wish I’d done it when I was 50 instead of 70 … well, actually, I wish I never would have bought most of that stuff in the first place.”
Unburdening themselves from oversized homes or mountains of unused items gives retirees the added benefit of putting those funds toward their retirement savings. A few thousand dollars wouldn’t be a game changer, but could free up the budget for travel or other hobbies in retirement.
The only caution here is to hold on to financial documents or files related to a past profession, such as a doctor or dentist. Kiplinger suggests some of those are required by law, while others (such as past tax filings or documents from a home improvement project) can be necessary years later.
9. Making a rash moving decision
Deciding where to live out your golden years can be a tough decision, especially if your family is spread out. You might pick up and move to be near your children and grandchildren, only to be disappointed when it’s not the Norman Rockwell painting you had imagined. On the flip side, you might regret those lost years if you decide against moving, only to find it’s too late to relocate when your health declines.
No matter what, many grandparents told The New York Times it was important to evaluate their own social connections, before moving and relying completely on their family to fill that gap. Evaluating your relationships with your adult children, and establishing healthy boundaries if you do move closer, are vital.
If you’re instead choosing to move to a warmer clime in retirement, Kiplinger suggests taking smaller steps before selling your home and possessions to move to Sarasota. The company suggests taking extended vacations before retirement to make sure you like the environment, the people, and the new location before fully committing. Otherwise, you might end up like the ranks of retirees who move, only to relocate again when the retirement destination didn’t satisfy.
10. Depending too much on debt in peak earning years
The decade or so before retirement can be a crucial time to save. The government allows for more aggressive saving in your retirement accounts, and you’re likely earning the largest paychecks of your career. However, those golden opportunities will be squandered if you’re living above your means before retirement, or living on borrowed cash through credit.
Paying off credit cards or other forms of debt can be a debilitating task, and often happens at the expense of your savings accounts. Living on borrowed money in your pre-retirement years means you’ll have much less to live on when you do decide to leave the workforce.
“People go out and live on credit cards,” Kehoe told USA Today. “It’s a terrible way to spend and live.” While that’s common sense, it often goes ignored. Plus, the habit of living above your means won’t be any easier to break once you’re retired. However, a fixed income will make it even more difficult to pay off those excessive tabs you put on plastic.
11. Not accounting for taxes
You pay taxes on everything, from the clothes you buy to the home you live in and the income you make. Not accounting for those extra costs can be a huge mistake when it comes to retirement.
This is especially true when it comes to making withdrawals from your retirement accounts. Most notably, you’ll pay hefty taxes on withdrawals from 401(k)s and IRA accounts if you take the money before you reach the eligible ages. Withdrawing the funds will typically incur some form of taxes, though they can be mitigated with the right financial strategies.
“Retirement planning, especially withdrawal, can be like a Rubik’s cube,” Kirk Cassidy, co-president of Senior Planning Advisors in Farmington Hills, Michigan, told The Washington Post. “You can solve the blue side, then you have a problem with the orange side. It can be complex. We want to make sure we take distributions from the right source at the right time at the right ages.”
Taxes are another thing to think about when you’re considering a relocation. Some states have lower taxes than others. That won’t affect your retirement distributions, but it could mean lower property and sales taxes, if you choose the right location.
12. Making the wrong decisions for surviving spouses
Financial decisions in retirement ultimately need to account for the event that your spouse could outlive you, and plan for every possibility. This is especially relevant for retirees who are cashing in on a pension check.
Typically, pensions offer a larger monthly check for a single-life benefit compared to a payout for a survivor annuity. But if that recipient dies before their spouse, the spouse doesn’t receive any benefit at all.
“Some of the folks who have taken the single-life benefit weren’t in that great of health,” Aaron W. Smith at A.W. Smith Financial Group in Glen Allen, Virginia, told The Washington Post. “But the loved one was in better health. It leaves the loved one without a pension for the remainder of their life.”
13. Not getting professional financial advice earlier
With the number of financial tips available online and in reputable books and other resources, it’s possible to establish healthy financial habits and strategies on your own. However, getting a second opinion from a professional adviser never hurts.
Waiting to get that advice, however, could mean you’re missing gaps in your savings plan that an expert would spot. Even if you’re not proud of your savings when you’re younger, it pays to get an expert opinion early on.
“One of the biggest [regrets] is, ‘I wish I had come to see you, or someone like you, years ago,’” Smith told the Post. “I didn’t come to see you because it wasn’t important at that time. I was intimidated, or I was embarrassed at where I was.”
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