It’s conventional wisdom by now that Americans aren’t saving enough for retirement. Recent studies have shown that many Baby Boomers might have to live on a mere $7,000 to $9,000 a year during their golden years, based on their current savings (not including Social Security).
If that’s not discouraging enough, financial planners say Americans are making plenty of other retirement missteps. Here are 19 other mistakes you could be making while planning for retirement.
1. Planning to stay in the family home
About three in five retirees decided to stay in their home for their golden years, according to a TransAmerica Center for Retirement Studies survey. But that may not be the smartest decision says James Bryan, principal of Cahill Financial Advisors. Rising upkeep costs, renovations and property taxes could make the house too expensive to manage. The house also may not be suitable for aging in place. “People don't want to let go because they feel like they are betraying the memories,” he says.
Solution: Add up the money you’ve spent on your home over the last five years and divide by 5 to get a snapshot of your annual costs. Then, increase that number by 2-5 percent to account for inflation. If it’s too costly for you to handle, consider downsizing or moving to a senior community.
2. Counting on working in retirement
About seven in 10 Millennials, more than half of Generation Xers and over a third of Baby Boomers expect to work during their golden years, according to a recent survey from Scottrade. But there’s a good chance that that won’t happen, according to the TransAmerica survey. Three of five recent retirees said they were forced to stop working sooner than planned because of job issues, health concerns or family responsibilities.
Solution: Plan your second or third career while you’re still on your first. Learn a new skill or a new language and don’t hesitate to take a few online courses – just for the fun of it.
3. Banking on an inheritance
Only about 11 percent of people in the National Longitudinal Survey of Youth 1979 received an inheritance. And the windfall for many wasn’t big enough to offset a lack of retirement savings. The median inheritance was $11,340, according to a study from Ohio State University’s Center for Human Resource Research. “Your rich aunt might leave it all to charity,” says David Schneider of Schneider Wealth Strategies. “Your parents may not have as much as you think or could spend their money down on long-term care expenses.”
Solution: Talk with your parents about their estate planning and how it might affect your personal finances. Otherwise, save as if you won’t receive any inheritance. If you do get one, create a savings plan for it. The Ohio State study found that adults who get a windfall end up spending, losing or donating half of it.
4. Not being emotionally ready
Almost seven in 10 retirees experienced some challenges adjusting to their new lifestyle, according to a 2015 Ameriprise study. About a third said losing connections with colleagues or getting used to a different routine was the hardest part of retirement. “Happy retirees are those who know what they're going to do when they are no longer working. They've thought about how they're going to spend their days,” says Mitchell Kraus of Capital Intelligence Associates. “Those who wake up one day and decide to stop working tend to be miserable trying to fill their days.”
Solution: The emotional changes you’re experiencing are common, and you’re not alone. You can find support and advice online with dozens of sites and apps that can help. If your feelings are more serious, you may want to see a professional therapist.
5. Not factoring the cost of downsizing
Almost two in five retirees moved to a new home during their golden years, largely to downsize or reduce expenses, according to the TransAmerica survey. While the strategy seems like a way to make retirement life easier, it can backfire.
“The complexity, and amount of decision making involved, is often more than simply relying on the statement of ‘we will downsize sometime in retirement,’” says Edward Jastrem of Heritage Financial Services.
Solution: Be sure to account for the time and money spent on home improvements before selling, organizing and cleaning out decades’ worth of stuff, and finding a new home. There’s also the real estate agent’s commission, capital gains tax and closing costs for a new home if financing the purchase.
6. Borrowing against retirement
More than one in 10 workers borrow against their 401(k) accounts, according to a 2014 Fidelity study. But it may not be advisable even though the loan rate is so competitive, says Stephen Hart, senior financial planner at Talis Advisors. “Most plans don't allow you to continue to make contributions while the loan is outstanding,” he says.
Even if they do, many people cut back or stop saving while repaying the loan, Fidelity found. Forty-percent of borrowers reduced their savings rate and 15 percent stopped altogether within five years. One of two went back to the well again and took out additional loans. “Those dollars are losing time that they can be compounding,” says Hart, “and it's often very hard to get back to a level of saving you were before.” Additionally, if you lose or quit your job, you will have to pay back the loan within 90 days or trigger income taxes and the 10-percent early withdrawal penalty.
Solution: Consider other options for cash-flow needs such as home equity loans, low-interest personal loans or a second job. If you do take out a 401(k) loan, pay it off as fast as you can and put additional savings into a traditional or Roth IRA or a regular investment account.
7. Bad asset allocation
How much you invest in stocks, bonds and other investments is key to building up your retirement savings over time. But this asset allocation should change as you age.
For instance, someone who is 60 and doesn’t need income should have an allocation with moderate risk that includes 5 percent in cash, 35 percent in fixed income and 60 percent in stocks, according to a guide from Charles Schwab. But a portfolio for an 80-year-old who needs income would have a very different allocation: 30 percent in cash, 50 percent in fixed income and only 20 percent in stock.
“I met someone in 2008 who was financially ruined because the 401K allocation he was advised to have when he started his job out of school—(which was) very aggressive—was never updated to reflect his age and current financial situation,” says Kashif Ahmed, president of American Private Wealth. “The sad reality is he will have to work for many, many more years to just to get back to even.”
Solution: If you don’t have a financial advisor and are managing your investments yourself, check out these apps — Personal Capital, SigFig Wealth Management and Ticker: Stocks Portfolio Manager — which can give your broad guidelines about how to manage your money.
8. Couple conflict
Couples who conflicted about retiring are heading for trouble, says Jason Dahl, director of financial planning at AFS Financial Group. “Either not being on the same page in terms of realistic income or investment return expectations,” he says, “or in terms of where and with whom they want to spend time with in retirement.” Almost two in five couples in a recent Voya Financial survey either didn’t agree or hadn’t discussed where they would live in retirement. In a Fidelity study, half of couples disagreed on their retirement age, and only one in five had a detailed retirement income plan.
Solution: Like everything else in a good marriage, communication is the key to avoiding conflict. Even if your plans change as you age, it’s good to make plans early on – especially when it comes to finances. Make a “what if” list and see if your plan covers at least one of life’s bad turns, like the loss of a job, poor health, or other unknowns.
9. Not planning on a long-enough life
One easy way to outlast your retirement savings is living longer than you expected, says Larry Luxenberg, managing partner of Lexington Avenue Capital Management. On average, a man who is 65 today can expect to live until 84, while a woman can expect to live to almost 87, according to the Social Security Administration.
But many more go beyond that. About one in four 65-year-olds today will live past 90 and one in 10 will live past 95. The question is: Will your retirement savings last that long?
Solution: Use an online life expectancy calculator, one that takes into account personal health and family history, to guide your planning. Revisit as you age and your life expectancy changes. Consider buying life or deferred income annuities or life insurance to increase lifetime income sources.
10. Avoiding death plans
Many people may meticulously plot out their retirement plans, but they avoid detailing what happens when retirement—and life—ends. Nearly two-thirds of Americans don’t have a will, either because they haven’t gotten around to writing one, they don’t think it’s urgent of they don’t think they need one, according to a 2014 survey from Rocket Lawyer. “It can become burdensome for the survivor's family to deal with all the legal matters to what songs do they want at the funeral,” says Brett Anderson, president of St. Croix Advisors.
Solution: If you own property and other assets, and care about who gets what, you should ask a lawyer to prepare your will. If your assets and your heirs are less complicated, you might be able to do this online at sites like LegalZoom. Either way, be sure to have a living will and assign a health care proxy.
11. Underestimating long-term care expenses
At least seven in 10 Americans over 65 will need some type of long-term care in their lives, but a vast majority underestimate the cost. While a third of Americans expect to pay $417 a month for home health services, the actual median cost for home health aid is $3,813 a month, according to a recent Genworth Cost of Care study. Other types of care are just as expensive or even more.
And Medicare kicks in very little for these costs. It covers 100 days at a nursing home, and may cover home care for a short period. But most people must pay for these costs themselves or through long-term care insurance. “Very few individuals have taken the proper steps,” Anderson says.
Solution: Make long-term care insurance part of your overall retirement plan if you can’t cover these costs with just savings.
12. Forgetting to plan for the unexpected
Even in retirement, things can go wrong. You may need to replace the boiler, repair your car or other “lumpy” expenses, says Kevin Reardon, president of Shakespeare Wealth Management. Even costs that are considered more fun—like a new car or a child’s wedding—requires advanced planning. But two studies last year from the Federal Reserve and Bankrate showed that 47 percent to 60 percent of people can’t handle an unexpected expense ranging from $400 to $1,000 without depending on credit cards, payday loans or family.
Solution: Start a ‘rainy-day’ fund for emergencies. It should be money that can earn interest as you add to it (interest rates will rise, eventually), and it should be accessible.
13. Not considering health insurance costs
“Before someone retires, they may not be aware how much is coming out of their paycheck to pay for health insurance,” says Reardon, “and they typically don't track other health care expenses because they tend to be sporadic and unknown.” But here’s a reality check: A healthy, 65-year-old couple can expect to pay $266,589 in lifetime retirement health care premiums for Medicare Parts B, D, and supplemental insurance, according to a study last year from HealthView Insights.
“I think most retirees know that they will have Medicare coverage at 65 but they don't know the different aspects and costs that go along with it,” says John Shanley, a financial advisor at Pinnacle Investment Management. “Not accounting for those costs has a big impact on the sustainability of someone's retirement plan.”
Solution: Shop early and often for the best deals on Medigap plans and Medicare Advantage plans.
14. Doing Social Security wrong
Social Security is ripe with bad decisions, says Evan Beach, wealth manager at Campbell Wealth Management. One couple he worked with had previously been told when they were 66 to delay benefits until 70 because they didn’t need the money. They asked for advice from Beach two years later.
“The right move in their situation would have been for the husband to file and immediately suspend his benefits at age 66. He had a max benefit at full retirement age around $2,600,” Beach says. “By filing, his wife is eligible for spousal benefits equal to half of his $2,600. At 70, she can continue the spousal benefit or switch back to her own benefit, whichever is higher.”
The mistake cost them two years of those spousal benefits. But they were able to sign up for the file-and-suspend strategy before it was eliminated on May 1 by last year’s budget deal.
Beach also noted that married couples don’t always understand that taking benefits early can reduce the survivor benefit.
Solution: In general, avoid taking Social Security early, says Randy Bruns, wealth advisor at HighPoint Planning Partners. Instead, wait until you get the maximum benefit at 70, but consult with a financial planner to make sure your maximizing your benefits. “Where else can you find … a 7- to 8-percent increase in lifetime monthly benefits for each year you wait?” he says. “This inflation-adjusted return beats the long-term average of the US stock market, and it's available risk-free.”
15. Not getting rid of high-interest debt
Debt is becoming a common problem among older Americans – and it can derail an ideal retirement. The amount of debt held by an Americans aged 65 jumped 48 percent on a per capita basis from 2003 to 2015.
While low interest-rate debts can be handled in retirement, higher-rate debt, like credit card debt, can crimp retirement plans. “I have seen clients get caught up in focusing on monthly payments instead of overall interest costs and when that happens they are almost always paying more in interest than they realize,” says Lora Hoff, a certified financial planner in Dallas.
Solution: Prepare a debt management plan by consolidating as much debt as possible at the lowest rates and working with your creditors to pay off the debt more quickly. But beware of new contracts with hidden loopholes.
16. Helping adult children
Helping adult kids with no limits can hurt your retirement, says Kristin Sullivan of Sullivan Financial Planning. “I'm not talking about planned giving, but bailing out of credit card debt, paying for grad school, buying adults a car when the old one breaks down,” she says.
One in five retired Baby Boomers financially support adult children, according to a study last year from Hearts & Wallets. Boomer parents who support adult children and are still working worry about saving enough for retirement.
Parents also shouldn’t take money from their retirement accounts to pay for their child’s college, says Wes Shannon of SJK Financial Planning. “The government makes sure that banks lend money for college, but they don't support loans for retirement living,” he says.
Solution: Unless your adult child is physically or mentally impaired, have the conversation that goes something like this: If I give you the money now, you’ll be on the hook for paying for me later. That’s why I’m saying no.
17. Not factoring in inflation
DIY retirement investors can forget about the impact of inflation on their savings goals, says Neil Maxwell of Maxwell Wealth Planning. Doing so can significantly underestimate how much you need to maintain your ideal lifestyle.
Consider the math. Say you need $40,000 a year for a comfortable retirement. Factoring in 3 percent annual inflation, you will need $53,757 in 10 years to support the same standard of living. In 20 years, that figure would balloon to $72,244. The math is even more dramatic for bigger numbers.
Solution: While Social Security payouts adjust for inflation, your other retirement savings don’t. That means saving more to keep up with rising prices. Use an inflation calculator to guide your savings.
18. Forgetting taxes
In a similar vein, retirees often overlook the effect of taxes on qualified pretax accounts like 401(k)s and IRAs, says David Mullins of David Mullins Wealth Management. That means taxes still need to be paid on money that’s withdrawn.
“As a retiree, you must understand that whatever your lump sum amount is in these types of accounts, a third will likely go out for taxes,” he says. “Failing to account for the tax bite can really make retirees underestimate the amount they need to live on.”
Solution: Add realistic cash-flow expectations that account for taxes to your budget.
19. Buying a bigger house
While buying a smaller home is often regarded as the retirement norm, one in 12 retirees move into a larger one, according to the TransAmerica survey. But that can be a big no-no, says Cary Carbonaro, managing director of United Capital Financial Life Management.
“Let's say you have a $1- or $2-million dollar nest egg and think, ‘I should have a great house in retirement’ and pull from your nest egg to do it,” she says. “Now you have a personal-use asset that costs you money rather than an asset that generates money for you.”
Solution: Think quality rather than square footage: You can have a smaller, low-cost dream house with the latest amenities and modern appliances that also offer a low carbon footprint. Remember, we’re still recovering from the housing crisis!
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