Every day in the U.S., more than 10,000 people retire. That’s right, every single day, 10,000 people leave their careers for their next phase of life. Planning is a big part of preparing for your next act, which could easily be as long as your working years. In my 20+ years as a financial advisor, I have identified pitfalls when it comes to retirement planning. Here are the most devastating retirement mistakes to avoid.
1. Counting On Your Parents’ Lifespan
Let’s face it: People are living longer. According to The Hamilton Project, more than one in three women and one in five men who are 65 years old today will reach 90. I’ve heard many of my clients say “My parents died at age 80, so therefore that is what I am planning on.” However, my clients start to re-evaluate their situations when I remind them about advancements in healthcare. I also share with them the story of my father, who suffered heart attacks, survived prostate cancer, and dealt with other health issues but still lived longer than anyone expected.
Past generations lived off pensions, higher-performing money markets, and CDs, benefited from growing real estate values, and had depression-era mindsets. This is very different from many of my clients today. A few errors in your planning, like not projecting out your retirement age and lifestyle, could cost you. We no longer have our grandparents’ “fail-safes” like pension income and higher lower-risk growth investment options.
Pro Tip: Go to your doctor to get a thorough checkup to evaluate your health, knowing genes are only part of the equation. You can even discuss with your healthcare provider what living to 90 or beyond might look like for you.
2. Stock Market Addiction
Investing in the stock market can help you get closer to your retirement savings and income goals. But you have to be prepared for the volatility and allow for corrections, which, on average, take about 4 years.
Pro Tip: Make sure you have 4 years’ worth of living expenses in “cash” or your retirement accounts so that you can withstand market corrections. Understand these are going to occur so you aren’t caught off guard (which can take a toll on you psychologically if you aren’t prepared). When the market goes through ups and downs, make sure you pause before you make any immediate decisions. Over the last 100 years, 70 percent of the time, the market has resolved itself with a favorable outcome.
3. Counting On “Free” Government Healthcare
Recently, a client mentioned he will be saving a bunch of money on health insurance when he retires. Yes, parts of Medicare are free, but most of the time you need to buy a supplement to government programs. In addition, you have to pay for government programs based on your earned income. The cost can be 400 percent higher than the “normal cost” everyone else is charged if you are not careful.
The estimated costs for a 65-year-old can range from $3,000 a year for someone in excellent health to $10,000 for someone in poor health, including premiums, deductibles, and co-pays according to Medicare.gov. And that $10,000 does not include long-term care, vision, or dental expenses.
Pro Tip: Consider how ROTH conversions can impact Medicare, doing more charitable donations in big tax years, and reducing your income from taxable sources if possible. Also read up on Medicare Basics: 7 Things It Does Not Cover.
4. Not Planning For Long-Term Care
If you’re turning 65 right now, you have a 70 percent chance of needing some type of long-term care. According to Longtermcare.gov, 65 percent of seniors will need 2 years of some type of in-home care. Most of these services are not covered by Medicare, Medicaid, or health insurance.
I will never forget the day in 2007 when my dad said, “Kevin, the business is not doing well and we have to cut costs. So we are going to get rid of the long-term care insurance.” I begged him not to. Well, guess what? Both of my parents got dementia in their 60s. Even with eight kids trying to help, we spent $500,000! More importantly, the family unit broke down with bad feelings between siblings about decisions that had to be made. The emotional toll is still impacting us to this day.
Pro Tip: Have a plan. And know that having no plan is a plan. There are four ways to handle a long-term care strategy: 1) Spend down all of your money and live on government assistance like VA benefits or Medicaid. 2) Talk to the family about them helping with your care. 3) Get a long-term care policy. 4) Get a hybrid cash value life insurance plan that allows you to accelerate death benefits if needed.
These are just a few red flags as you plan for retirement. Make sure you are having the hard conversations with loved ones about aging. And talk to a trusted financial professional to help keep you on track. These two things will help you have the retirement you’ve dreamed of!
Preparing to take the plunge? This is The One Conversation You Need To Have Before You Retire.