Making financial errors is a typical way to learn. However, when you're already retired, the consequences might be more severe, derailing what was meant to be a stress-free phase of life. Fortunately, you can learn from others' errors and prevent some of the most typical mishaps without going through them yourself. Check out this article now to know what mistakes to avoid.
1. Keeping the Same Investment Portfolio
You can't afford massive negative fluctuations in your savings when you retire. It's often advised that investors adopt a long-term strategy of leaving money in the market regardless of market fluctuations. That's because, while being quite volatile at times, the stock market has traditionally risen over time. However, when you retire, you must consider the near term since you will require access to the funds. Maintaining some money in more aggressive growth investments is still a good idea, but not at the same level as when you were younger. You won't earn the biggest gains in net worth, but you'll be safe from significant losses.
2. Maintaining the Same Lifestyle
One of the most common mistakes retirees make is failing to adapt their spending to their new retirement budget. Those who have worked for a long time struggle to realize that things like eating out, shopping, and recreational costs should be decreased because they are no longer making the same amount of money. Furthermore, many retirees often overlook that they will have new expenses they will have to cover, such as healthcare and long-term care costs. You can ensure that you are prepared for any circumstance by making necessary budgeting and planning changes.
3. Desire To Move
The appeal of warmer climates has long enticed many people approaching retirement. However, before you take the plunge, you should first test the waters. Spend prolonged vacation time at your chosen destination far before your retirement date to gather a feel for the people and lifestyle. Don't forget to consider the costs of moving to be sure it's within your retirement budget.
4. Applying for Social Security too Early
You can start receiving retirement benefits at the age of 62, but you may want to wait if you can afford it. Most financial advisers advise deferring retirement until you reach full retirement age. Let's say your full retirement age, the point at which you would receive 100% of your benefit amount, is 67. If you apply for Social Security at the age of 62, your monthly benefit will be cut by 30% for the rest of your life. Whereas if you wait until you're 67 or 70, you'll earn an 8% increase in benefits each year due to delayed retirement credits. After the age of 70, no more retirement credits are available.
5. Ignoring Long-Term Care Costs
Long-term care costs might be one of the most significant threats to your retirement savings. According to government statistics, over 70% of people who reach the age of 65 will require long-term care at some point. According to Genworth Financial Inc., the median cost of an assisted living facility in 2020 was $4,300 per month. In 2020, a private room in a care home cost more than twice as much. Many seniors are unaware that Medicare does not cover the majority of long-term care expenses. It only covers 100 days of skilled nursing facility care if a three-day hospital stay preceded it. If you don't have a large savings account, you should start thinking about long-term care insurance in your late 50s or early 60s.
6. Forgetting Required Minimum Distributions
When it comes to withdrawing money from their retirement accounts, some retirees do not withdraw nearly enough. If you have a qualifying retirement plan, such as a 401(k) or a conventional IRA, you must begin drawing distributions by the age of 72. If you don't take a required minimum distribution, you may have to pay a 50% excise tax on the amount you should have withdrawn.
7. Failing to Evaluate Pension Options
While pensions are not as common as they once were, retirees that have them need to carefully evaluate their options. Pensions payments can vary greatly depending on whether you choose spousal benefits or even the payment start date. Oftentimes, pensions offer a lump sum option instead of monthly income payments. Retirees need to be fully aware of the pros and cons of each decision they make.
Schedule A Consultation with an Experienced Financial Advisor
Here at Fourth Avenue Financial, our first priority is your overall financial success. We want to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your investments are setting you up for a path of financial success. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://calendly.com/fourthavenuefinancial/introductory-zoom.
Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.