One of
the biggest retirement mistakes you can make is not realizing what you don’t
know.
One of the biggest
retirement mistakes you can make is not realizing what you don’t know.
I regularly hear from
people in or near retirement who
misunderstand how Social
Security works, dramatically underestimate life expectancies or fail
to plan for big expenses, such as long-term care or taxes.
These aren’t folks
looking for advice. They’ve already made up their minds and want to argue about
financial planning precepts, such as when to take Social Security or how much
retirement is likely to cost. But what they think they know just isn’t so.
The reality is that
most people don’t get good, objective financial advice before they retire, says
actuary Steve Vernon, consulting research scholar at the Stanford Center on
Longevity. Many people simply wing it, figuring that if they have a Social
Security check and a little savings, somehow everything will work out.
Unfortunately,
retirement is complicated, and your decisions can have irreversible
consequences. Talking with a professional — ideally a fee-only
financial planner — could save you from a costly mistake,
including any of the following.
1. Thinking you’ll
die young (or at least early)
Average life
expectancy is 79, but that’s from birth. If you make it to 65, you can expect
to live another 20 years or so.
If you die early in
retirement, your worries about paying for it are over. Live longer, though, and
you easily could outlive your money. That stacks the deck in favor of waiting to start
Social Security, since each year you put it off from age 62 to 70
increases your benefit by about 7% to 8%. That’s a guaranteed return on a
stream of income that you can’t outlive or lose in a stock market downturn.
Plus, you may live
longer than you think. The average U.S. life expectancy is just under 79, but
that’s from birth. If you make it to 65, you can expect to live another 20
years or so. Half of all women currently in their mid-50s will live to 90, as
will 1 in 3 men, according to the Society of Actuaries. People with healthy
lifestyles and more education tend to live longer than average.
2. Ignoring your
spouse
Speaking of Social Security:
When one spouse dies, one of the couple’s two Social Security checks goes away.
The survivor has to get by on the larger of the two checks. It’s important to
maximize this survivor benefit by having the higher earner delay filing for
Social Security as long as possible.
Also, married people
who will get a pension should strongly consider a “joint and survivor” option
that allows payments to continue for both lives.
3. Carrying debt into
retirement
If you’re wealthy,
having debt may not be a big deal — you have plenty of income to make the
payments, and your investments may be earning more than you’re paying in
interest. If you’re not rich, though, you may be pulling too much from your
savings to service the debt. That could increase the chances you’ll run out of
money.
Big withdrawals from
retirement funds also could push you into a higher tax bracket and increase
your Medicare premiums. Give yourself some options by planning to have debt
paid off by retirement, but consult a financial planner before you tap
retirement accounts to pay off any big debts, such as a mortgage.
4. Failing to plan
for long-term care
If there’s anything
people want to ponder less than death, it’s decrepitude. Yet someone turning 65
today has a 70% chance in the future of needing help with daily living tasks,
such as bathing, eating or dressing. Family and friends will help some, but about
half will incur costs for long-term care — and 15% will incur costs of $250,000
or more. Long-term care insurance may be one solution, or you may want to
earmark certain investments or your home equity.
5. Assuming you can
work longer
About half of retirees
report leaving the workforce earlier than they had planned. A few get lucky,
thanks to windfalls or strong stock markets. Many more retire because they lose
their jobs and can’t find replacements or because of ill health (their own or a
loved one’s). Working longer can help you make up for not saving enough, but
it’s not an option you can count on.
6. Putting off
retirement too long
With all this gloom
and doom, now I’m telling you to hurry up already? This bit of advice is for my
fellow ants living in a grasshopper world: Sometimes, the grasshoppers get it
right. Time, good health and energy are all finite resources. Spend a few
hundred bucks of your hard-earned savings on a fee-only financial planner — and
find out if it’s time to start living the future you’ve been saving for.
This article was
written by NerdWallet and was originally published by The Associated Press.
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