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Surprising Things People Get Wrong in Retirement
Retirement should be a major life highlight. Whether retirees are looking to travel more often, spend their time gardening, or visit with family and friends, the last thing anyone wants to do is be stuck living in an RV and cruising the Amazon fulfillment circuit just to make ends meet. Yet, getting retirement right is harder than the average person might realize. In order to avoid less than favorable golden years, avoid these surprising things that people get wrong ne they leave the workforce.
1. Retirement Age
Traditionally, the retirement age has been slated around 65 years old, and since we’re living longer, many people assume they will probably be able to work into their 70s. However, many Americans don’t realize they will probably need to retire earlier.
Unfortunately, poor health and agism are a reality, and many older workers have found that they’ve been forced out of the workplace earlier than they expected. According to The Motley Fool, 62 years old seems to be the average age of retirement.
Retiring early has some significant drawbacks including the lack of financial security. Many people begin drawing from their saving or Social Security benefits sooner which means that they will run out of money much faster. To try and combat this, if you are indeed forced to retire earlier than you anticipated, you need to invest as much as possible as early as possible.
Next: Government benefits shouldn’t be your sole source of income.
2. Relying on Social Security
Though there have been reports that Social Security is drying up faster than a sponge in a desert, we have all been taught to rely on it. Unfortunately, this means that many Americans have overestimated the benefits they will receive from the government after retiring. In reality, Social Security is designed to replace only around 40% of pre-retirement income which isn’t even half.
What you don’t want to do is set unrealistic expectations. If you’re younger than you are in danger of saving too little if you are leaning heavily on Social Security. If you are older, you might fail to cut your cost of living.
Next: Believing you’ll be healthy forever
3. The cost of healthcare
We live in a country where the cost of healthcare is astronomical. Most people think that when they retire, they will spend only 20% of their Social Security benefits on health care. However, that is a gross understatement. Unfortunately, reaching the age of retirement also means that health care costs will likely rise.
Many seniors soon realize that healthcare cost will prevent them from retiring in the manner in which they want. On average, retirees 65 and older spend about $6,000 annually on healthcare. Since the average monthly benefit for a 62-year-old retiree is just $1,076, many people will be giving up half of their check for healthcare.
Serious health issues and the immense cost of prescriptions are also concerning.
Next: Having no concrete plan
4. Playing a guessing game
Most of us think that retirement means living a carefree life full of travel and fun activities. The reality is that most of that time will be taken up by medical appointments. Since most of us don’t prepare, neglecting to have a written retirement plan could be devastating.
In reality, a 55-year-old couple retiring at 66 will need 92% of their benefits, and a 45-year-old couple will need an astounding 122% of their Social Security benefits to cover their retirement health care needs.
Next: Not having a budget
5. Neglecting your budget
You’re probably relying on a random ballpark number to assess how much money you need to save for retirement, but you should give the numbers a closer look. By taking a close look at your budget each month, you can save more money and really focus your finances on your living expenses and the things and activities that you genuinely enjoy.
It might also help to start thinking of your savings in three different categories, one for necessary living expenses, one for lifestyle spending, and one for long-term health care.
Next: Not saving at all
6. Pulling the plug on saving
When most people reach the age of retirement, they stop saving, which isn’t smart at all. We get that you’ve been saving all of your life, but many retirees could ease some stress by continuing to save. Time’s Money vertical reports that financial advisors recommend that retirees keep 12-18 months of living expenses in short-term cash accounts.
This is a great way to reassure yourself that you are living within your means and have a little wiggle room for unexpected expenses.
Next: Trying to deal with it all alone
7. Not asking for help
Let’s just be honest, numbers aren’t everyone’s strong suit and thinking about retirement and the amount of money you need to save can be overwhelming at any stage of life. Therefore, it’s important to reach out and ask for help. A good financial advisor can help you map out your life when it comes to savings, investments, and everything in between.
Their fees might seem a bit costly at first, but they can certainly earn their keep in the long run.
Next: Assuming you can live on a limited budget
8. Thinking you’ll spend less
For those of us who still trek to work each day, parking fees and train passes certainly add up, as do those daily coffee runs and expensive lunches. Therefore, many of us assume that when we retire, we will automatically begin spending less, but that’s not necessarily the case.
There’s a lot of ways to spend money without even thinking about it, and just because you’re at home more doesn’t mean you won’t have opportunities to travel, shop online, or even indulge in expensive skin care products or other things that might catch your eye. The only way to combat being an overspender during retirement is creating a budget and STICKING to it.
Next: Putting all of your eggs in the same basket
9. Not putting your money in the correct places
There are a zillion ways to save. Between IRAs and 401(k)s most of us are overwhelmed by the terminology, but its certainly worth digging into it all. If you start storing your money in the wrong places, you can lose out in the end.
You must consider inflation, tax incentives, and everything else that comes with saving and planning for retirement. This is why speaking to a professional is highly recommended. You certainly want to make your money work for you.
Next: Getting scammed
10. Being gullible
Unfortunately, retirees are the most easily targeted group when it comes to scams that try and get folks to part with their money. Therefore, it’s always important to be informed. If it seems to good to be true, it probably is. Also, no third party should be asking for your personal information over phone, mail, or email.
Always check and double check, especially when you are unsure. It’s better to be safe than sorry.
Next: Expensive car costs
11. Holding on to your vehicles
There is no shame in downsizing, especially when you’ve reached retirement age and just don’t need the space or the vehicles that you once did. If public transportation is readily available in your area and if you’ve mastered the use of car-sharing apps, you might want to consider letting go of an extra vehicle or two once you retire.
If you have a vehicle you no longer need, you can sell it or gift it for a tax write off. Cars are expensive even if they’re paid off, and if you don’t really “need” a vehicle on a daily basis, you can be saving a ton of money on car maintenance, gas, and insurance.
Also, using public transportation and walking will help aid in a healthier lifestyle.
Next: Relocating without researching
12. Moving too soon
Downsizing and relocating can be a good thing during retirement, but if you haven’t done your research beforehand, it can be disastrous. Some retirees sell their homes and downsize and then discover high property taxes in their new areas. Also, when folks move away from the city to rural areas to cut expenses, they might not have access to major airports or medical centers which can undoubtedly be costly in the long run.
Retirement specialist Bill Losey explained, “We’re seeing a surprising number of retirees who make an expensive move, then end up moving back after a few years, costing even more.”
Before moving anywhere at any age, it’s always good to have as much information as possible.
Next: Letting go of life insurance
13. Letting their life insurance lapse
Traditionally, life insurance is set up to replace lost wages in the event of an early death. Therefore, when people finally do reach retirement age, many of them make the mistake of letting their policies lapse. If you’re married and become widowed, your lifestyle could change drastically if your retired spouse dies and vice versa.
Retirees might not “need” life insurance, but keeping their life insurance can remove burdens from their families.
Next: Making a massive mistake
14. Making a poor financial decision
We’ve all made poor financial choices in our lives, but they can be especially devastating during retirement. You could be roped into a scam, overpay for a home, and a slew of other things that just don’t work out. Getting professional help, adjusting, and scaling back are all options to help you weather the storm.
The best thing to do is to be honest and upfront about your error so you can make the steps to begin recovering from it.
Next: Leaving work too early
15. Retiring too soon
Some folks are forced into retirement due to health concerns or issues finding work, but if you are still agile and excited to keep working into your late 60s and 70s, then there is no reason to retire before you are ready. Signing up for Social Security at 62, the earliest year that it’s allowed means you can lose out on out on 25 to 70 percent of your potential benefits especially if you live well into your 80s or 90s.
A few more years in the workforce can mean a less stressful and healthy retirement.