The pandemic has pushed individuals across the nation into thinking about their retirement plans - or for many, their lack of plans. No matter where you're at in your retirement journey, the road to a successful, stress-free future lies in proactive planning and learning how to avoid financial potholes that could set you back even further.
Retirement planning is one of the most important financial goals for your future. When executed correctly, you'll help you maximize your potential for financial independence later in life.
When done incorrectly however, you’re facing a future that could be laden with stress and worry. Now is a good time to look at what you currently have, what you may need in retirement and a solid plan to get you there.
A new survey from Credit Ninja shows that the financial uncertainty has 21% of people reassessing their retirement age. To avoid a negative outcome in your golden years, consider these 5 key mistakes to avoid in retirement planning, and make moves now to avoid them!
- Not Having a Retirement Plan
The most common mistake that many people make is not having a retirement plan in place. While short-term panicking isn't the answer to your unpreparedness, trying to predict future expenses instead of focusing on future income is a recipe for disaster.
There are many factors that come into play when planning for retirement. Such as, where you will retire, the kind of lifestyle you want to have while in retirement, and most importantly, your health. What some people fail to realize is not having a retirement plan in place sets them back significantly.
It could mean working longer or making serious adjustments to your lifestyle to get you there. Most people without any 401(k) savings are put in that position because they don’t have access to a plan at work, which is caused by their employer not having a plan at all. Another situation could be, they’re part-time or they haven’t been at the company long enough to qualify for a retirement plan. The best way to get around this is to see if your company offers retirement plans, if they do make sure to contribute enough to take advantage of any match your company offers.
It's never too late to start your retirement income plan, so reach out to your trusted financial advisor and get started today.
- Not Saving Money Now
A rule of thumb for retirement planning is, you should always know your savings rate. Savings rates are calculated by dividing the amount in your savings by your annual income - and trying to increase it every year. The lower your savings rate, the less money you'll have to last you through your golden years and the less you'll have to afford all of the necessities you've grown accustomed to.
According to the U.S. Bureau of Economic Analysis, the average American saved just 9.4% of his or her disposable income as of June 2021. However, most financial advisors recommend saving 10 to 15% of your income for retirement. No matter what sum you need or feel is right for retirement, the sooner you start saving and investing, the more secure you’ll be in the future.
- Spending too much
Many retirees start by pursuing all the things they didn’t get to do while working, such as travelling, picking up a new hobby, buying a new car or renovating their homes. But so many underestimate the actual cost of these monumental expenses. To avoid this mistake, create a detailed but realistic budget - and stick to it. Be sure to work with your financial advisor to find a withdrawal rate that will stretch your money for as long as possible.
To help compensate for the additional spending you have in mind, as retirement nears, you’ll want to make sure you are maximizing your 401(k) or individual retirement account contribution and decreasing your debt and spending. Take a look at anything that has double-digit interest and eliminate that. Ideally, you don’t want anything you are paying 5% interest on. A great example of this is home mortgages. Refinancing your loan could benefit you in the long run.
If you're having trouble saving more of your income, take a look at your spending habits and see where you need to cut back. It can be eye opening to see how little things can add up.
- Not Planning for Medical Expenses & Long-Term Care Costs
Long-term care is expensive. A study by Fidelity Investments found that a couple retiring at 65 would need $295,000 to cover medical costs in retirement. That figure doesn’t even account for long-term care, such as assisted living or nursing home costs. The yearly average cost of a nursing home in the U.S. is $93,075 for a semi private room and $105,850 for a private room. Not considering these costs in your retirement plan now, means you could be like many families who run out of money within a year of entering a nursing home.
You might have a few medical bills now, but you'll likely have more as you get older. If you're having a hard time finding the money to pay for your current medical bills, you might have an even harder time paying medical expenses when you enter retirement. By saving money now, you won't have to worry about not being able to pay hospital bills in the future. Planning for medical expenses is an important part of overall retirement planning.
- Not Implementing Estate Planning
While estate planning is an ongoing and ever changing strategy, there are common documents that are part of it: a Will, Living Trust, Powers of Attorney for your assets and healthcare directives, customized tax planning and other more complex components of a customized Trust.
The overarching goal is to protect your assets on the journey to retirement and to make sure that your wishes are executed correctly, so that your loved ones have an easier process and your assets are maximized.
Effective estate management enables you to manage your affairs during your lifetime and control the distribution of your wealth after death and can spell out your healthcare wishes and ensure that they're carried out – even if you are unable to communicate. It can even designate someone to manage your financial affairs should you be unable to do so.
Final Thoughts
In 2021, the path to retirement success includes a mixture of saving strategies consisting of steady pension contributions from your employer, retirement annuities, estate planning, investments, emergency savings and more.
For those nearing retirement, reach out to your retirement income advisor. (Note: Not all financial advisors have the same level of experience or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.)
At Agemy Financial Strategies, we have an array of retirement planning solutions to help you save and grow your money. If you have any questions on our company, services, values or more, contact the retirement income experts at Agemy Financial here today. Our trusted advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call.