Just the thought of retirement and planning for it can cause anxiety. Many feel overwhelmed and unprepared. After all, making certain mistakes early on can have dire consequences on your future, particularly as you get closer and closer to your desired retirement age.
Here are a few common mistakes and steps you can take to avoid them…
Mistake #1: Procrastination
Money often causes anxiety at every stage of our lives. In fact, finances have ranked as the top stressor among Americans, according to the American Psychological Association.1 There is never seems to be a right or convenient time to start saving. As a result, many people out it off thinking they’ll have plenty of time. However, procrastination is a painful and expensive mistake. The most valuable asset you have when saving for retirement is time. Money multiplied by time builds wealth. The longer you delay getting started, the harder it will be.
Stop procrastinating and start planning. The sooner you get started, the greater your chance of reaching your retirement goal.
Mistake #2: Living large
One of the biggest dilemmas for those approaching retirement is balancing the life they want to live today with the life they want to live in retirement. How much do you think you will need to maintain your current lifestyle in retirement? For many people, the answer is, “I don’t know.” According to the Retirement Confidence Survey from the Employee Benefits Research Institute, only 4 in 10 workers (41%) report they and/or their spouse have ever tried to calculate how much money they will need to have saved so that they can live comfortably in retirement.2
The goal of retirement may seem unattainable if your assumption is too high, leading to discouragement. Alternately, if your assumption is too low, you could potentially run into a difficult financial situation later.
Be conservative. Most people underestimate how much money they think they will need. The general rule of thumb is to figure that you will need approximately 70-80% of your current annual income in retirement.3 Don't forget that, thanks to inflation, things will cost a lot more money in the future. Consider that overspending today, means the less you have saved for tomorrow.
Mistake #3: Not considering health care costs
One of the most overlooked areas of retirement planning is estimating what health care costs could be in retirement. According to the latest data, a 65-year-old couple will pay $404,253 ($607,662 in future dollars) for total lifetime health care costs. In retirement, Americans become responsible for 100% of their health care expenses, including premiums, copays, deductibles, and all other out-of-pocket expenses. 4
Many people assume Medicare will cover these expenses in retirement, but this is not necessarily true. Medicare doesn't cover a range of expenses, such as dental services, prescription eyewear, hearing aids and related exams. Nor will Medicare pay for long-term care expenses for chronic conditions or disabilities.
Know your options and what to expect. Work with your Financial Professional to account for these expenses in retirement.
Mistake #4: No long-term care plan
When you're young and healthy, it's easy to overlook what could happen to your health as you age. It's not fun to think about getting sick or becoming disabled, however anyone who has cared for an aging parent knows first-hand the toll it can take on their loved ones and their savings. Both the time and money needed to provide quality care can be staggering.
The U.S. Administration on Aging estimates that about 70% of people currently turning age 65 can expect to use long-term care at some point in their lives. The average cost of a semi-private nursing home room is $205 per day, or about $6,235 per month.5
It’s important to know your long-term care options and how you plan to pay for these future expenses if you need to. It’s better to be prepared for the possibility than to be unable to afford the care when you need it.
Mistake #5: Not updating your retirement plan
Life changes. Markets rise and fall. Your income and expenses change. You may want to take less risk with your investments as you get older. Because of this, it is important to revisit your plan periodically to make sure you remain on track to reach your goals.
To avoid these common mistakes, start planning now. Write down your current financial needs and your goals for the future. Most importantly, seek help. A Financial Professional can help you see the hidden gaps in your planning that might hurt your financial future.