Many of us think of retirement as a time to live comfortably and travel to different places. While this is true to some extent, you still need to ensure that you can sustain the change in your lifestyle and still be able to make your money work for you. When planning for retirement, it is essential to learn the fundamental steps involved in the process so you can avoid making mistakes that can affect your financial security.
The key to a successful retirement life is to have a clear vision of the kind of life you want to live and to get things right the first time. Because the stakes are high, you want to set your financial goals early and lay out a plan to achieve it.
Below is a list of the most common retirement-planning mistakes that people make:
Making decisions that affect financial options
Many people in their 50s reduce their use of credit cards as a way to prepare for their retirement. But this may not be the best thing to do especially because unused credit cards can hurt your credit score. A low credit score can in turn limit your financial options during your retirement years. This is bad news especially if you end up needing to borrow money to refinance a mortgage or co-sign a loan later on. However, be careful not to rack up credit card debt in retirement, and take time to choose a card that will best serve your needs.
The key to maintaining a good credit is to use the card for making small purchases, and pay your bill in full every month.
Counting on Social Security Benefits
Social Security benefits can provide financial protection, which is why it is no surprise that many retirees rely on Social Security as a vital source of funds during retirement. The problem with leaning on Social Security income is that it is designed to replace only 40% of income. In other words, if you rely too heavily on Social Security, you run the risk of falling short on budget once benefit cuts and changes are implemented.
One way to reduce reliance on Social Security is to develop good spending and saving habits. This way, you will be able to reduce expenses in preparation for your post-work life.
Underestimating the cost of healthcare
The rapid increase in healthcare costs can have a significant impact on the kind of lifestyle you plan to live after retirement. Healthcare is one of the biggest expenses of retirees, and according to an analysis by Fidelity Investments, couples who are 65 years old and above will need to allot approximately $275,000 for medical expenses. The amount you need to cover health care are likely to be higher in later years as medical costs continue to rise. When planning your budget for retirement, you should take into account the medical expenses that will be paid out-of-pocket.
You can project your future healthcare needs by consulting your physician regarding your risk for certain diseases. Your family’s medical history can be an indication of the type of care you might require in retirement. Once you have an idea of your potential medical needs, you can then compute the amount you need to save to cover health care costs.
Not taking retirement into their own hands
Planning for retirement may be out of the question for workers who have another 20 to 30 years before they hit the retirement age. But many financial experts agree that even young professional can start planning early to be able to live a comfortable retirement in their 60s.
Not taking the first steps to plan for retirement is one of the most common mistakes people make. It is crucial to determine the kind of lifestyle you want to look forward to once you leave the workforce, as this will allow you to have a realistic picture of the amount of money you need to cover your expenses in retirement.
Avoidance and inaction
Avoidance is one of the biggest mistakes that people make before retirement. The mere thought of planning for retirement can cause anxiety for many people. The process is full of questions such as how much money one needs to save to cover expenses, what investments will have the best returns, and what an ideal retirement looks like. With all the decisions that have to be made, it can be overwhelming to the point where some people choose to avoid the planning stage altogether.
It’s normal to feel anxious as you prepare to transition from corporate culture to a life of relaxation and leisure, so take things one step at a time and start saving and investing early so you have more time to prepare financially.
Avoiding the mistakes above can help you secure your finances in preparation for your retirement. There is much more you can do to make a positive change to enjoy the lifestyle you envision during your golden years.