Not enough savings and too much spending?
You move along through life and perhaps think about retirement, but some people do not plan retirement, until they are in their mid 50s. The result? Mistakes have already been made, according to The Street in “Avoid These Big Mistakes in Your Retirement Planning“.
The biggest, most obvious and perhaps least followed lesson: do as much of the planning in advance as possible. Don’t wait until you wake up on your first day of retirement to figure it out.
Here are the top four mistakes people make:
- Overlooking the impact of Health Care costs. Inflation in Health Care is more than three times the Consumer Price Index’s annual increase. Medical inflation hit an average of 6.8% in 2018, and it’s not likely going down any time soon. Medicare covers hospitalization (Part A) and doctor visits (Part B) but it does not cover many other critical costs. You’ll need to pay for long-term care, vision, dental, co-pays and deductibles.
As we age, our Health Care costs go up. When you are in the early stages of retirement, active, busy and healthy, it rises around 5%. However, as you age, if you are lucky enough to do so, your health insurance costs could leap by 15% annually.
Planning for Medicare options is very important. It is where many retirees make big mistakes. You’ll need Medigap insurance to cover areas that Medicare does not. You’ll also want Part D to cover prescriptions.
The bigger Medicare mistake is failing to enroll at age 65. If you miss it, you’ll have to pay a penalty just to get enrolled in the program. It’s not easy to figure it out, and the instruction book is 130 pages long. The website is also confusing. However, you have to do it and do it right.
- Neglecting to save. Really save. It’s next to impossible if you are twenty-something, have enormous student loans and have not gotten your career on track, to even think about retirement. It’s not easy and it’s not the first thing younger people are thinking about. However, the sooner you start putting money away for retirement, the more time you have for the money to grow. If your company offers a retirement plan, start putting something away, even if it’s a small amount. Over time, that will grow, your income will grow and you will be better positioned for retirement. Automatic deductions will make this more likely to happen. If your parents are nagging you about retirement, make them happy: sign up for the plan at work and go for the auto deductions. It’s one less thing for them — and you — to worry about.
- Poor investments. People who take a do-it-yourself approach to their investment portfolio vary in levels of success. Some devote a lot of time to it, including educating themselves about industry sectors and market performance, but others follow the ‘brother-in-law’ school, which unfortunately is less reliable. That’s when your brother-in-law boasts about how much money he made in a particular stock. However, he neglects to tell you about how many losses he’s taken along the way. A team approach of an educated investor with a professional financial advisor is a better way to go.
- Thinking you know it all. Overconfidence has sunk many retirements. People who are highly successful in life think that career success will automatically translate into retirement and financial planning. It’s also very hard for these types of people to accept that there’s something they do not know and cannot control. It is even harder for them to ask for help. Don’t make this mistake – ask for help and create a solid retirement plan.
Reference: The Street (April 11, 2019) “Avoid These Big Mistakes in Your Retirement Planning.”