On average, ten thousand baby boomers retire every day as per estimates from AARP (American Association of Retired Persons). While each day these many boomers are turning 65, this trend is expected to continue up until the 2030s. An increasing number of studies continue to show how unprepared adults are in the U.S. when it comes to retirement. Mounting debts, lack of savings, and stalled wages have contributed to the retirement crisis, and there are many who haven't formulated a plan for their sunshine years.
Whether you are fast approaching retirement or are concerned about your future, it is important to know about the common retirement mistakes and how to avoid them:
Mistake #1: Not planning ahead – Recent statistics show that only 10 percent of the retired actually had a written plan and one in three did not save up on anything. According to the Economic Policy Institute, many Americans in the age group of 56 to 61 have just $17,000 in their retirement savings while 75 percent have less than $100,000. Planning ahead involves looking into how much money will be needed post-retirement to maintain your current lifestyle while factoring in additional expenses due to inflation, healthcare/hospice costs, and other unforeseen expenses.
The first step to retirement planning is to use a retirement calculator to understand how much money you will need at retirement and compare your current savings against this figure.
Mistake #2: Not being aware of future expenses: The cost of living will not stay the same. Although 84% receive Social Security benefits, these are to the tune of $1,317 per month, which is inadequate to meet these rising expenses.
Experts recommend gathering seven times as much as your current annual salary by the time you turn 55. This means that those earning $50000 annually should have a minimum of $350,000 saved up at 55. Experts also recommend that by the age of 67, the amount saved should be ten times that of your current salary.
Mistake #3: Not factoring healthcare expenses: Healthcare expenses are one of the major factors that determine retirement planning and are expected to rise significantly. Many people overestimate the benefits of Medicare which may not cover 100 percent of costs. Co-pays and deductibles can place a huge burden on already-stressed savings. On average, a couple will need a minimum of $280,000 at retirement for medical expenses.
While planning ahead for long-term care, it is crucial to invest in health insurance from a competent insurance provider who can guide you on the most suitable healthcare plan for you and your family.
Mistake #4: Spending more after retirement: For many people, the newfound freedom from work or responsibilities post-retirement can act as an incentive to spend more than what they do currently. The phenomenon, known as deferred spending, can disrupt the stable financial balance that is crucial during this period.
An ideal way of fixing this is to create a long-term budget and put in the effort to adhere to it. If you plan to increase your travel or vacations post-retirement, it would be a great idea to start saving up specifically for these. Maintain a record of your expenses so that you know where each dollar goes.