Retirement is an inevitable phase of life that everyone must prepare for. While it may seem daunting, planning for retirement is essential to ensure a comfortable and financially stable future. While no single retirement plan offers the “right” answer, it’s important not to make mistakes that can hinder your retirement goals and lead to financial stress. Let’s take a look at six retirement practices that you should avoid.
Most people do not consider the amount they'll need for medical expenses. The reason is that Medicare doesn't cover retirement healthcare costs. You should, therefore, plan to get supplemental insurance to avoid paying for medical expenses out of pocket.
For example, in 2022, the amount 65-year-old retired couples were estimated to need to cover health care expenses was approximately $315,000 in savings.
2. Social Security
You have been paying your social security throughout your career, and now is the time to reap the benefits. Social security makes up 90% of retirement income. It's, therefore, essential to avoid any mistakes that could cost you money.
Claiming your social security too soon may reduce your retirement benefit. Waiting longer, up to 70 years, to file for social security means getting higher benefits. Even though you can file at 62, full retirement is at age 66 or 67, depending on your birth year. Additionally, the more you work, the more you put into the plan thus the higher your payment.
3. IRA Penalties
You can withdraw your money from the IRA, but there's a catch. You have to do it at the right time to avoid penalties. Popular belief is that you must wait until you reach 70 1/2 to make penalty-free withdrawals. However, you will not be penalized when withdrawing between 59 1/2 and 70 1/2.
Withdrawing your IRA before you reach 59 1/2 triggers a 10% early withdrawal penalty. But there are exceptions to the sentence.
- Withdrawing for medical expenses
- Withdrawals after death
- Withdrawals after disability
- For health insurance during unemployment
4. Life Expectancy
It is always advisable to start saving as soon as you start earning. Savings and investments will go a long way in your retirement years. The sooner you start saving, the more money you can accumulate for retirement.
You should plan accordingly, since you may live longer than you anticipate. With a life expectancy of 76.4 years, it means that after retiring, you still have more years to enjoy your retirement savings.
5. Not Having an Estate Plan
You must take steps to protect your investments for yourself and your family. The foundation of an estate plan is a will and the powers of an attorney.
Unlike popular belief, estate planning is not a reserve for the rich. You should have a will that clearly outlines who will inherit your belongings. A will is a powerful tool to safeguard your loved ones' future.
6. Proper Planning
The cost of living keeps increasing, and you must factor that into your retirement savings plan. Determine the amount you can live on monthly and work on it backward.
As you near retirement, you should add up your expenses and current salary and include healthcare costs. Calculate how much you need to save to retire comfortably.
Inflation is also something you should know about. It can hit hard, pushing your retirement costs higher. Most retirees make the mistake of not factoring inflation into their calculations. But it's something you have to consider. Put your money so that it grows to outpace inflation. You can do that with proper planning and investing.
Whatever you decide to do, retirement planning services will make things smooth. Contact Caldwell Trust today for all your retirement planning needs.