Avoid the Biggest Mistakes in Retirement

Avoid the Biggest Mistakes in Retirement

Retirement is something we look forward to all of our lives. We imagine what life will be like when our time is our own and we can spend it hanging out with people we love, enjoying our hobbies or even pursuing some solo adventure travel.

To make all of these comes true, though, you’ve got to sidestep some common mistakes that can put a damper on your golden year.  Avoid these mistakes to set yourself up for retirement success.

Thinking Social Security Will Be Enough

During our working years, it can be easy to view retirement as something far away that we can plan for later. We also see taxes coming out of our paychecks that go to fund our future Social Security and Medicare benefits.

If we delay saving money for retirement because we think Social Security will be enough, we’ll be in for a rude awakening one day. The average Social Security recipient earns $1400 or less each month, and this isn’t nearly enough to live. It’s important that we start saving money toward retirement in our 20’s so that we can take advantage of all that compound interest over time.

Start with saving whatever amount you can, even if it’s only $25/month. You’ll be amazed at how much that can grow when you’ve got 40 years of accumulating compound interest ahead of you.

Living Beyond Our Means

While there are some expenses that may go down during retirement, there are also a number of things that will cost the same. For example, groceries and utilities are things you will likely spend just as much money on in retirement as you do now.

So, when you finally do retire, it’s important that you make a budget and know exactly what your monthly expenses will be. Then live within that budget and don’t overspend. You want to enter retirement debt-free and then keep yourself debt-free as well. This may require some sacrifice but living frugally in as many categories as possible will help our retirement accounts to go the distance with us.

Expecting Medicare to Cover All our Healthcare Expenses

Most Americans know that Medicare will be their health insurance someday when they turn 65. However, they don’t know much about what the various parts of Medicare will cover or what they will cost.

Your future Medicare Part A hospital benefits will likely not cost you anything because you pay taxes toward those future benefits during your working years.  However, you can expect to pay monthly premiums for Part B and D for as long as you are enrolled in them. Part B premiums in 2019 start at $135.50/month but some people pay considerably more than that based on their income.

Unless you have drug coverage by another means such as VA benefits, you will likely also pay for a Part D policy to help you with your medication costs. These average around $35/month in 2019.

Lastly, Medicare only covers about 80% of your medical expenses in retirement. You will pay the other 20% of outpatient services as well as hospital and outpatient deductibles, copays and coinsurance. Some people enroll in a Medigap plan to take care of these expenses for them.

So, what can you do to save for these future healthcare costs? Consider enrolling in a high-deductible health plan during your younger years so that you can open a health savings account. You can contribute tax-free money into your HSA during your working years and these will accumulate.

You’ll use the funds only for qualified medical expenses, and hopefully, over time, you’ll build up a sizeable medical nest egg so that when you retire you can use those funds to help pay for your Medicare premiums as well as dental and vision expenses and even long-term care costs.

Not Accounting for Long Term Care Needs

Speaking of long-term care costs, it is estimated that one in two people will eventually have a long-term care stay of some kind. Yet so many of us never plan for this staggering expense.

There may come a time when you are no longer able to care for yourself. If you need to move into an assisted living or nursing home, Medicare will not pay for this for you. It only covers your medical needs.

These facilities can run thousands of dollars per month and you will need to pay for this privately. If you fail to plan for this potential cost, you could quickly drain all your retirement savings.

So, it’s important to set aside enough money in our retirement accounts to pay for this type of care if we ever need it. You can also check into long-term care insurance now while you are younger and can still hopefully medically qualify for benefits. Many policies will let you set up benefits that will help to pay for custodial care in your own home.

Planning ahead for all of these things can hugely reduce the amount of financial anxiety you might otherwise incur during your golden years. Sit down with a financial advisor to set some savings goals. You’ll sleep easier now that you know you’ve got a plan.



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