It’s entirely possible that you could live for 25 to 30 years after you retire. Planning to be financially secure for the rest of a potentially long life requires making a series of complex decisions, each with high stakes. And you often won’t have a “do-over.”
If you can avoid making these seven common retirement planning mistakes, you’ll be halfway there to living a long, financially secure life.
Mistake #1: Retiring too soon
You can significantly increase your retirement income by delaying your retirement, even if it’s just for a few years. Downshifting – working part time for awhile, just enough to cover your living expenses – can also be a great strategy to consider.
Mistake #2: Basing your retirement decision on a “magic number”
Some people think that when they attain a target amount of retirement savings, they’ll have enough money to retire. But such a magic number doesn’t give you any guidance on how to manage your finances to last the rest of your life – it’s really just a version of “winging it.”
Instead, you’ll want to determine how you can generate retirement income that will cover your living expenses for the rest of your life.
Mistake #3: Starting Social Security too early
Social Security is the best retirement income generator hand’s down, and for most retirees, it’s the largest source of their retirement income. Social Security protects you against common retirement risks, including living a long time, stock market crashes, and inflation. So it makes sense to maximize the amount of money you can expect to receive from Social Security over your lifetime, and for your spouse’s lifetime if you’re married. Many people can achieve this with a thoughtful strategy that includes delaying the start of benefits.
Don’t make the mistake of claiming benefits early because you think Social Security will go bankrupt. That’s a losing bet! Instead, do your homework to determine the best date for you to begin benefits that will generate the most income.
Mistake #4: Assuming you can work indefinitely
For many people, their “retirement plan” is to simply keep working as long as they can. While working longer is a common-sense way to improve your finances, there’ll come a time in your life when you’re no longer able or willing to continue working.
As a result, you’ll want to take steps to ensure that you can work as long as you need. You’ll also want to make a financial plan for the time when you can no longer work.
Mistake #5: Assuming Medicare is the only health insurance you need
Many people think that just because Medicare is called “medical insurance,” it’s the same as the insurance they enjoyed while they were working. Bad mistake! Medicare has significant deductibles and copayments, and it doesn’t even pay for many health services that employer-based plans typically cover, such as vision or dental care.
You’ll want to buy a policy that supplements your Medicare coverage, making sure to choose carefully with the rest of your life in mind.
Mistake #6: Automatically assuming you won’t move after you retire
Although you might think you’ll live in the same house you’re living in now, there’s a good reason to investigate a move. Many people might need to reduce their living expenses in retirement, since they won’t have enough retirement income to support their current level of spending. When confronted with this decision, many people start by cutting back on eating out and their cable TV. But those steps aren’t enough to close a large gap between your expected retirement income and living expenses.
The largest living expense for most retirees is housing, so a smart way to close your spending gap is to downsize. In this situation, you have a win-win opportunity to find a place to live that will better meet your needs in retirement.
Mistake #7: Planning just for the “vacation” part of retirement
When people think about retirement, many often fantasize about travelling to exotic locations and walking on the beach at sunset. But those activities will only take up a few weeks of the year. Have you thought about what your daily life will be like in retirement? You’ll want to plan for both the vacation and the “daily life” parts of your retirement.
There are more retirement planning mistakes that it’s possible to make, but working on these is a great start. While it’s straightforward to identify the retirement planning mistakes you should avoid, the steps you might need to take to make your life even better are usually highly personal to your goals and circumstances. Once you’ve taken steps to avoid making these mistakes, turn your attention next to planning for the life that works best for you.
Want to learn more about mistakes to avoid and strategies that can further improve your life in retirement? Each chapter of my recent book, Retirement Game-Changers: Strategies for a Healthy, Financially Secure, and Fulfilling Long Life, identifies both.
Retirement Game-Changers Book
It’s going to take some time and effort to plan for a successful retirement, but it’s worth the effort.