What do you baby boomers think of when you hear the word “retirement”? If you’re prepared, you may have blissful thoughts about life without the need for an alarm or days spent with the grandkids. In contrast, if you aren’t financially prepared for it, the word itself can inflict apprehension about what the future will bring.
Too often, boomers don’t realize until they hit retirement that they weren’t ready. My guest blogger, Danielle K. Roberts, co-founder of Boomer Benefits and a member of the Forbes Finance Council, lists four of the top mistakes boomers can avoid, to be one step ahead in your retirement planning.
Mistake #1: Taking Social Security benefits too early
First, it is important to know that Social Security was not designed to sustain your lifestyle without another source of income. The majority of seniors need 70% or more of their pre-retirement income to maintain their lifestyle in retirement.
How to Avoid:
The longer you can delay Social Security, the easier it will be to supplement your other savings in retirement, leaving you a comfortable amount to live on.
Full retirement age is 66 or 67 depending upon your birth date. For every year that you delay taking your benefits (beyond full retirement age), you will increase your benefits by eight percent.
If at age 67 you are set to receive a benefit of $1,600 a month but delay taking your benefits until you are 70, you would instead get $1,984 a month for the rest of your life. A few years can equate to a large sum of money over time.
Mistake #2: Having debt entering retirement
The sad reality is that over 70% of baby boomers in the U.S. (60 and older) are in debt. Debt alone can wreak havoc on your retirement.
How to Avoid:
Before you quit your job and head off into the sunset, pay off as much debt as you can.
Interest rates have a bad habit of increasing and your income is likely going to be fixed. Having a fixed income makes it a lot more difficult to put a dent in your debt. Eradicating debt before you retire will be both a financial and mental relief as you head into your Golden Years.
Mistake #3: Underestimating the full cost of health care in retirement
Medical costs in retirement are staggering, even if you’re healthy! In a widely publicized study, Fidelity estimates that a healthy couple retiring in 2019 would need $285,000 set aside for health care costs. This number will only grow over the coming years.
How to Avoid:
Don’t assume that having Medicare will mean no out-of-pocket expenses. In fact, you could potentially have hefty bills that you are responsible for. Of course, Medicare will help cover a large portion of your health care costs, but you will still have monthly premiums, deductibles and coinsurance.
The best thing you can do is prepare ahead of time with a tool like a Health Savings Account (HSA). An HSA can be a vehicle for setting aside money for health care costs, but it can also act as a triple tax advantage for you.
Last, don’t forget about long-term care. Long-term care is one of the costliest expenditures a senior can face. Whether you choose a long-term care insurance policy or set aside a portion of your HSA savings for this substantial expense, don’t let it become an afterthought.
Mistake #4: Assuming your money will outlive you
Most of us want to get as much out of life as we can. Too often, our optimism overshadows our savings accounts. Data from the Federal Reserve shows that the median amount Americans have saved for retirement in total is $120,000; a fraction of the recommended $1 million nest-egg.
How to Avoid:
It is never too late to start stockpiling money into a 401k or IRA. These types of savings accounts will propel your money much further than storing it in a traditional savings account.
Whether you need to cut down on your grocery expenditures, downsize your home, or find a way to boost your income – getting more money into one of these accounts will make life easier for you in retirement.
It’s Never Too Late
The best thing you can do is have a plan. Whether you find yourself in the middle of retirement without enough to live on or you are a pre-retiree realizing the monster expenses you’ll face, devising a plan to build up a nest-egg is still in reach.
Start today, your retired-self will thank you later.
Danielle K. Roberts is the co-founder of Boomer Benefits where she and her team help baby boomers navigate their Medicare insurance options. She is a member of the Forbes Finance Council and writes frequently about Medicare, retirement and personal finance.