When you think about retirement, you probably think about all the things you’d like to do with your newfound free time. Traveling, gardening, catching up on time with friends and family, exploring new hobbies — the world will be your oyster! In order to enjoy all the fruits of your labor and have a successful retirement, you must be wise with your money and plan ahead so you don’t run into any financial surprises that could derail your dreams.
Here are some of the most common financial mistakes people make after retirement and how you can avoid them:
1. Applying for Social Security Benefits Too Soon
Many people apply for their social security benefits as soon as they reach the minimum age of 62; however, taking these benefits too soon permanently and significantly reduces the monthly payout for which you are eligible. If your monthly social security benefits will be one of your major sources of income in retirement, you want that amount to be as high as possible.
The longer you stay in the workforce and delay claiming these benefits — up to age 70 — the better your monthly benefit will be. This is especially important when you consider that people now tend to live for many years after they retire. Applying too early and reducing your monthly benefits may be a decision you will regret for decades to come.
2. Maintaining a High-Risk Investment Plan
It makes sense to have a high-risk investment plan when you are young and just beginning to save for your retirement, which is at that point many years in the future. The greater risk of these plans also offers a better potential reward, and you have time to bounce back from temporary setbacks in the market. As time goes by and you reach middle age, financial planners recommend switching to an investment plan with more moderate risk, as you now have less time to save and more to lose.
When you retire, it is more important than ever to have a conservative investment plan. You need that money now, and it will be much harder to recover if you suffer a major financial loss. Be proactive and talk to a financial planner about moving your investments to safer plans for your retirement.
3. Failing to Adjust to Your New Income Level
When you retire, your monthly income will likely be less than it was when you were working. It is imperative that you adjust your spending accordingly. If you want to take expensive trips, for example, that will require some planning to make sure you can budget accordingly. You also need to look at your everyday life for ways to reduce your overall expenses.
Are you maintaining a house that’s larger and costlier than you really need? Are you prepared to handle unexpected expenses if your house needs major repairs? You might find greater happiness and financial stability by selling your house and moving into a smaller home or a condo with included amenities and services. Smaller expenses, such as dining out and entertainment costs, can add up quickly too.
4. Not Planning for Medical and Long-Term Care Expenses
You may not have a lot of medical expenses now, but that won’t be the case forever. As we age, more medical care becomes necessary, and Medicare doesn’t cover everything. You are still responsible for Medicare premiums, dental costs, and other out-of-pocket expenses. If you develop a chronic condition or encounter a major health issue, it can quickly become very expensive, so you need to set aside funds to cover it. You’ll also need to be sure you budget for funds to spend on routine care and screenings for health maintenance and to identify potential health problems before they become more serious.
Long-term care is another big consideration. If you must receive long-term medical care or move to a facility which can provide these services, it will cost thousands of dollars each month. Saving money for this situation is important, and buying a long-term care insurance policy before it becomes an issue is a good way to help protect yourself financially.
Looking for a place to enjoy a comfortable retirement? Contact us to learn about the community at Aderra!