With retirement moving from a vague concept to reality, Baby Boomers are starting to take a real hard look at their preparations. Many decisions are still pending, and many pitfalls remain.
If you are among the millions of Boomers now facing the realities of retirement, how ready are you?
You know that preparation is about more than money, but understanding the complexities of retirement income is crucial.
Do you understand all the rules concerning your pension (if you have one)? What about your 401(k), IRA, and other retirement accounts in your nest egg? You also need to have a grip on when to claim Social Security benefits. These are some of the issue you need to address in the days and months ahead of your retirement. However, don’t wait too long to do your research and ensure that you’re making the right moves.
Kiplinger’s recent article, “Retirement Planning Mistakes You'll Regret Forever,” compiled a list of the greatest retirement planning mistakes and how to avoid making them.
Spur-of-the Moment Relocation. If you’re thinking of moving to Arizona or another warm weather spot to get out of the cold, test the waters before you make a permanent move. Consider renting before you buy a home.
Not Saving for Retirement. The single greatest financial regret of Americans surveyed by Bankrate was waiting too long to start saving for retirement. Those who responded who were age 50 and older expressed this regret at a much higher rate than younger respondents. Many people don’t begin aggressively saving for retirement until they reach their 40s or 50s. While these investors may still have enough time to change their savings behavior and achieve their goals, they’ll need to take action quickly and be extremely disciplined about their savings. Morningstar calculated the amount required to save each month to reach a goal of $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.
Taking Social Security Too Soon. You can start taking retirement benefits at 62. However, you should consider delaying this if you can afford it. Most experts recommend that you wait at least until your full retirement age–67 for anyone born after 1959–before tapping Social Security. If you can wait until 70, it is even better.
For example, if your full retirement age (when you’d get 100% of your benefit amount) is 67, but you claim Social Security at 62, your monthly check will be reduced by 30% for the rest of your life. If you can wait, it’s an 8% boost in benefits each year between ages 67 and 70 because of delayed retirement credits. Talk with an elder law attorney, because the strategies can differ for couples, widows, and divorced spouses.
Pretending You Don’t Need Estate Planning. This is where many retirees make a huge blunder. Estate planning is needed by everyone. It is not just for when you die, but while you are living. If you own a house, a car and have a few bank accounts, a will is necessary to tell your heirs and beneficiaries who you want to get what. If you don’t have a will, the state will decide how to apportion your estate. However, you (and your family) might not like the state’s decisions. You also need a durable power of attorney, so that someone can make financial decisions on your behalf should you become incapacitated. You will also want an advance directive, like a living will, to explain what kind of end of life care or health care decisions you would want, if you are unable to make them yourself.
An experienced estate planning attorney will be able to help through the many decisions that go into creating an estate plan. With their guidance, it will be a relatively easy process.
Reference: Kiplinger (February 12, 2018) “Retirement Planning Mistakes You'll Regret Forever”