Four Mistakes That Can Upend Your Retirement

Pursuing your retirement dreams requires a bit of preparation. As you develop your vision for the future, make sure you avoid these four retirement mistakes:

Having No Strategy

The biggest mistake is having no strategy at all. Yet, only 18% of Americans have a written retirement plan in place.[1] Without this framework, pursuing your retirement goals can be challenging. Aim to develop an approach for both your working and retirement years, and revisit them as needed.

Retirement means huge changes in your finances—from your assets to your liabilities. Talking to a professional about your accounts, tax planning, and risk management can go a long way to retire successfully.

Missing Tax-Deferred Savings

Many workers have access to 401(k)s or other types of tax-deferred programs. Some even offer an employer match. Unfortunately, about one-in-five participants doesn’t optimize their match.[2] Consider ways to avoid leaving this free money on the table by maximizing any employer-matching contributions. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

These deductions are limited, however. You can contribute up to $19,000 to a 401(k) and another $6,000 to an IRA for 2019. If you are over 50 years old, you can also include “catch up” contributions of up to $6,000 to a 401(k) and another $1,000 to an IRA. However, you will be taxed on withdrawals from your 401(k) and IRA—this investment option is tax-deferred, not tax exempt.

Forgetting High Health Care Costs

The cost of health care rose higher last year: A 65-year-old, male-female couple that retires in 2019 should be prepared to pay $285,000 in health care expenses during their retirement years.[3] From prescription costs to extended care, medical expenses can add up. Outline your potential health care needs today, so you’ll be prepared for tomorrow’s medical costs.

Accounting for longevity and health care costs adds a layer of complexity to retirement planning not encountered by prior generations. While there is no way to project your actual health care costs in retirement, you can at least make some assumptions based on your current health condition, family history, lifestyle choices and your ability to maintain good physical and mental health. It makes sense that, if you are in tip-top shape at age 65, you will likely have lower health care costs than someone who has diabetes or cardiac disease. However, due to your longevity, you may be looking at more years of long-term care. The best you can expect is to have enough money set aside to cover likely out-of-pocket costs, while proactively managing your health care coverage in retirement.

Keeping Too Much Debt in Retirement

Retirees aged 65 to 70 years old have an average of $20,643 in non-mortgage debt, which may include car loans and credit cards.[4] You may want to consider managing or reducing your debt level as you prepare for retirement.

With a well-crafted strategy, you can be proactive and better manage some common retirement pitfalls. We’re happy to help you make the most of your retirement. Contact us today to learn more.

[1] https://www.fa-mag.com/news/most-americans-don-t-have-a-written-financial-retirement-plan-44471.html

[2] https://www.usatoday.com/story/money/personalfinance/retirement/2018/02/12/1-in-5-americans-are-making-a-terrible-401k-mistake/110251212/

[3] https://www.cnbc.com/2019/04/02/health-care-costs-for-retirees-climb-to-285000.html

[4] https://www.lendingtree.com/debt-consolidation/places-where-people-at-retirement-carry-the-most-debt/