Think of retirement as an old-fashioned fold-out map that will help avoid wrong turns, like not taking an employer-match for your 401(k), overlooking major costs in retirement like healthcare and forgetting what your dreams for retirement once were. Be aware, says Kiplinger, of “The 5 Biggest Retirement Mistakes to Avoid.”
Not having a strategy. The best sports teams don’t go into games without a plan. Retirement is no different, except that it’s more important for you personally than your favorite team’s success. Setting goals and creating a strategy before and during retirement is the best way to achieve the retirement you want. The choices made in the years leading up to retirement can impact finances for the rest of your life. It’s also complicated. You need to minimize taxes, maximize Social Security, chose a Medicare plan, get your estate planning done and figure out how all these elements can work together in the best way. A retirement may last one, two, three, or more decades. It requires planning.
Not maxing out on tax deferred savings. Not taking advantage of tax-deferred 401(k) and IRA contributions can be a huge mistake. The same goes for not participating in a plan when your employer generously matches your contributions. For 2019, you can contribute up to $19,000 to a 401(k) if you are under 50, and as much as $25,000 if you are 50 plus. For IRAs, the limits are up to $6,000 if under 50 and up to $7,000 for those 50 and up. Contributions are not taxed, so you can save for retirement and reduce your tax bill at the same time. Just remember that the money is taxed, when it’s withdrawn.
Neglecting to adjust investments before retirement. Protecting your nest egg from market volatility is easier said than done, especially in recent weeks. However, it’s a worthy goal. When you have a long time to recover from market volatility, the bumps, big and small, don’t mean so much. However, if you retire just as the markets crash, that can impact the entire rest of your life. You can’t predict markets, or eliminate risk, but you can take some measures to decrease your risk exposure, like diversifying a portfolio.
Forgetting health care costs. This is the retiree’s biggest fiscal nightmare, and a big unknown. You could be totally healthy when you retire, and six months later suffer a health a crisis. Good health is worth an investment. However, Medicare only covers a certain amount of health care needs, and it’s not free. Part B premiums can be as much as $460 for high income earners, and many retirees purchase additional Medicare Advantage or Medigap plans. A couple retiring at 65 today should expect to pay an average of about $400,000 in health care over the course of their retirement. This doesn’t include long-term care, like nursing home care.
What about your life? Planning for retirement is not all about money. Long before you retire, think about what you’d like to accomplish during this time of life. Do you want to travel, contribute to your community, go back to school, spend more time with your family, or create a legacy? Ideally, personal goals will dictate financial goals, and not the other way around.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Kiplinger (Sep. 4, 2019) “The 5 Biggest Retirement Mistakes to Avoid”