You’ve worked hard for many years. Upon retirement, most people would like to live on their own terms. Maintaining a comfortable lifestyle requires you to take the proper steps to secure it. That includes avoiding common errors which could put your retirement finances at jeopardy.
With precautions in order, retirees will be more prepared to enjoy a secure – and hopefully financially confident – future. Having said that, let’s cover a few pitfalls which could do a number on your financial security.
Common Retirement Pitfalls to Avoid
1. Not ensuring you have enough retirement income. This is one of the biggest mistakes someone can make. When people retire, income from full-time employment goes away. It becomes a matter of replacing it with new income sources – namely retirement savings, investments, Social Security, or other vehicles.
If you don’t have a plan for retirement income, the alternatives can be grim. You and your partner may have to work longer, or you may need to find new ways to save as much as you can. It could even mean having to reduce your standard of living to fit your new situation. The bottom line is a shortfall in retirement income can greatly change your quality of life. It’s better not to leave it to chance.
2. Ignoring rapidly-rising healthcare costs. According to the Employee Benefit Research Institute, since 1999 employer-based health insurance premiums have gone up nearly 300%. Health View Services projects that someone who retired in 2016 will face annual healthcare inflation of 5.1% for the next 20 years – or where healthcare costs increase 5.1% per year.
In real-world terms, someone retiring in 2016 may have to pay $33,000 more in healthcare costs than someone who retired in 2015 – due to inflation! Despite the growing expenses, many studies show retirees and pre-retirees neglect healthcare inflation in their planning. Healthcare costs will be one of the biggest areas of expenses for most retirees. Don’t forget to account for it!
3. Forgetting longevity risk. As everyone knows, people are living longer than ever before. With ongoing innovations in technology, lifespans may continue to lengthen. With these longer lifespans, there are more years to account for in retirement planning. It may seem appealing to use your life expectancy as an age-based metric for financial planning purposes, but this actually could be a mistake.
According to the Social Security Administration, about one out of four 65-year-olds today will live past age 90. Moreover, about one out of ten 65-year-olds will live past age 95. In reality, it’s difficult to say for how long we might live. A better approach may be planning beyond personalized life expectancy metrics to help ensure you have enough money in retirement. On the whole, no matter what method you use, we believe the importance of planning for many years in retirement can’t be overstated.