Everyone thinks that retiring from work is one of the most loosening up decision to do. Imagine yourself not waking up early in the morning, not jostling yourself on your way to work and not accomplishing several stress-driven assignments. Imagine yourself just enjoying a day in a tropical beach facing the crystal blue water while sipping a glass of mango shake.
But are you prepared enough (mentally and financially) to embrace another chapter of your life without worries and apprehensions?
According to the Employee Benefits Research Institute’s Retirement Confidence Survey, 14% of adults are convinced that they will live a comfortable life after retiring while 60% have admitted they have less than $25,000 worth of savings. Will that be enough to compensate the life you dreamed of after completely quitting work?
Here are seven of biggest mistakes you have to avoid when planning your retirement:
- Being too complacent. Most adults retire from work earlier than planned. There are inevitable causes that you may encounter just like accidents, illness or job loss. These may prohibit you from working efficiently and productively. Let us say a worker encountered a horrible accident and he accidentally lost his arms or legs. This may affect the capability to carry out the work and the employer might terminate or look for another one as replacement. So while your nerves are still running sprightly, learn to save 10% of your monthly income.
- Not preparing and saving for medical benefits. As we grow older, we may also experience different abnormalities in our bodies. Our immune system becomes weaker (not when we regularly exercise and practice healthy living). An average couple retiring nowadays at the age of 65 will normally spend $285,000 for their health-care costs upon retirement. It’s also important to secure or invest in a medical or life insurance while you are still young.
- Failing to secure a stable income upon retirement. Income pensions can also be gone especially when you spend a lot. It’s advisable to convert your savings to a lifetime source of income just like a business.
- Early retirement. Many adults retire too soon. Most companies provide bigger retirement income to those who stay longer on the job. This will also prevent you to tap your savings and take Social Security benefits. Almost half of the Americans collect Social Security and not even wait for their normal retirement age. If you are still active and healthy, and financially sound, it is recommended to wait until you reach 70.
- Underestimating longevity. As reported, 60% of Americans say that they live longer than what they have expected amidst the exposure to different kinds of unhealthy food and lifestyle. Generally, a woman at 65 can anticipate living up to 84 while it’s 81 for an average man. There are also a lot who even make it to 95 or 100.
- Spending too much. Many draw down savings from retirement too speedily. It’s tempting to buy things that you want and go to places you have just dreamed of visiting. Many retirees tell themselves that now is the time to experience things they included in their bucket lists but always bear in mind that concrete financial planning is important to manage your savings properly. Financial experts advise to maintain your annual drawdown rate to 4% of assets.
- Disregarding tax impacts of distributions. When you are planning to retire, it is important to create tax-efficient income. It will help you to obtain several kinds of accounts: fully taxable, tax-free and tax-deferred. Also, as much as possible, avoid early distribution take-out. This will initiate penalties and hold back to a later time your assets’ long-term growth.