People who are about to retire tend to make some extremely common mistakes along the way. Are you one of the millions who will retire in the next five to ten years? If so, you may want to read this post and avoid five common mistakes people tend to make before their retirement.
The first is people stop saving for their retirement altogether. As we approach retirement, one of two things will cross our minds. One is we have saved enough money, and we can retire comfortably. The other is we have not saved enough, and we will therefore never be able to retire. Most people tend to fall into the second line of thinking. And most people who see saving for retirement as hopeless they do indeed tend to stop saving altogether, and that is an extremely poor decision. When it comes to your retirement, every dollar you can save is important.
In a recent survey I read the average medium, household has saved only $14,500 for retirement for someone nearing retirement. This is not a good sign as we will need much more than that if we are to retire really and live with any standard. This figure includes a figure of about 45% of people who have no savings at all. Again, not a good sign. For people between 55 and 64 with retirement accounts, the median savings was $104,000 in 2013. While still not where someone needs to be it is better than the previous $14,500 that the median household had saved. As you approach retirement, it is extremely important to take full advantage of workplace savings plans such as 401(k)’s and IRA’s that people can administer themselves. The key is to save early and often and let compounding do its wonders but under no circumstances should anyone stop saving for their retirement.
A second mistake people approaching retirement make is they invest like they are 35 and not 60. The theory here is that someone who is younger can withstand losses better than someone closer to retirement. This is because a younger person has time on their side that an older person does not have. Now I do not think anyone should ever totally be out of the stock market due to the fact many people spend decades in retirement, and your money needs to continue to work for you and appreciate and equities are the best way to manage that. But someone in their 60’s does not need to be invested 100% in equities as that is just too risky. The key here is to know your risk tolerance, know what you are invested in and revisit your investment plan on an annual basis.
A third misnomer is that being retired means you do not have to work anymore. That is true for some people, but the reality is most people have to work in their retirement years. While there are people, who will have saved enough to retire fully many people get bored and go back to work in some form or fashion. According to a recent survey the oldest baby boomers, those born in 1946, only 52% a fully retired. A shocking 21% still work full-time, and 12% are working part-time or seasonally. Only about 2% are still employed full-time. If you elect to collect Social Security early, you will be penalized if you earn too much, so there is that to take into consideration as well.
A fourth mistake that is common is people try to buy a house or refinance after they are retired. While not impossible to do it is much more difficult to do either if you are no longer employed. The time to do both of these is while you are still working full-time and before retirement. People who lend large amounts of money was assurances that you will be able to repay their loans.
The fifth and final error people make is that they do not consider their healthcare needs will increase as they age. This could not be further from the truth. Almost everyone experiences a rise in healthcare as they age not a decrease in these types of expenses. A recent study estimated that a retired person can expect to spend about $250,000 in retirement on out of pocket expenses related to health care. This is compared to what people expect to pay, about $50,000.
Now that you are aware of these five danger areas it will be easier for you to plan and, therefore, retire with some confidence. Think of the worst case scenario and plan for that if you can. Then if all goes smoothly, you will be better off for it than if you did not prepare at all.
If you need more information or have any questions feel free to contact me directly or leave a comment here.
