How to Avoid 8 Retirement Money Mistakes

If a generation is considered to be 25 years, then I would say we have a whole generation of people born in the 1940’s, the 1950’s and half of the 1960’s who are either retired, or looking to retire soon. I believe the days of waiting until you’re 65 or older to retire are gone.

The premise is to retire while you’re young and healthy, so you can at least enjoy some of your retirement years, and this desire is leading to a lot of people taking early retirement. Some as young as fifty! But a vast majority of them are waiting until they are either 55 or 62 years old, and I hate to say it, but this is where the retirement money mistakes can easily be made or avoided.

A lot of times people are so focused on their idea of retirement, that they forget the reality of it, and the reality is that expenses and prices will continue to grow, while your income could possibly remain the same for the rest of your life! There is more to retiring than just doing it. You should have some type of financial plan in place so that you are living the lifestyle you want, without having to go back to work once you’ve retired.

Below are at least 8 things you need to avoid when retiring or planning for retirement. These are things I’ve observed, learned from others and experienced first hand about retiring so that you can get an idea of what you need to focus on, and plan for.

How to Avoid 8 Retirement Money MistakesWaiting Too Late To Save Money

One mistake a lot of us make is waiting until we are five years away from retiring, before we start saving for retirement, or we wait until then to check our retirement plan and finances. The sooner you do this, the better prepared and the more finances you will have.

People are living longer, so it will take more money for living expenses than it did 20 years ago, and the earlier you retire, the more money you will need. So if you happen to be one of the late starters, you can still save money, but it’s going to take budgeting and really cutting back on items you’ve probably grown very accustomed to having.

Selling Your Home And Moving To Someplace You Hate

If you’re retiring soon, you may want to consider selling your home, and moving to a part of the country that’s not as expensive. Or moving into a smaller place. If you do this, make sure you move to someplace you love and want to be.

Don’t make the mistake of selling your home, and not liking where you moved to because of your family, friends or the weather. Once you sell your home, there is no going back.

You also need to think twice about selling your home and moving into an apartment. Even if the rent is cheaper, it does go up every year and eventually it could become more expensive. Something to consider instead – if you’re 62 or close to it – is looking into the reverse mortgages they offer.

Don’t Withdraw Money From Your 401K Or IRA

Hopefully your retirement plan includes either one or both of these accounts. Having this extra money can go a long way to creating the lifestyle you desire, and with that being said, unless your 401K or IRA is the only source of retirement income, why not wait until later to withdraw the money. You have to wait until you’re 59 1/2 before you can withdraw without paying the 10% penalty.

But you would still have to pay taxes on that withdrawal, so why not wait a few more years before you start withdrawing. During that time frame, your accounts will still be making money. If you find yourself needing the money, determine if you can leave at least one of the accounts to continue to make money for you.

Depending Solely On Pension And Social Security

Neither one of these incomes is guaranteed! You really can’t depend on either. The pension you receive is fixed income and will never be more than what it is, and if you continue to carry your health insurance through the company you worked for, that payment will come out of your pension, and don’t forget this payment goes up every year.

Even when you turn 65 and Medicare takes over part of your health care coverage, you still have to purchase and pay each month for the supplemental insurance, and this goes up every year also.

Think about this… what happens if you keep this insurance for the next ten years and every year the premium increases? Your pension check will start to dwindle, then what? As if that is not bad enough, you also get to pay income taxes on that pension.

When it comes to Social Security it’s scary to even think about depending solely on this income to live! Even though they give out small percentage increases, it still won’t necessarily keep up with inflation. Whatever you get at retirement will soon loose its value, because the price of living will always increase more that the increase in your Social Security. Another thing to think about. Medicare is not free, unless you fall into what is called the low income category. You do have to pay for this and the payment comes out of your Social Security.

Early Retirees Investing In Fixed-Income Securities

If you retire between the ages of 50 and 60, why invest either primarily or entirely in fixed-income securities? You will probably live into your 90s or more, so why not invest where you can receive an increasing income stream. You want your money to continue to grow when you retire. You don’t want it to stop.

If you plan on living until you’re 90 or 100 or more, you want your income to be there with you. It’s no guarantee that you will live that long, but at least you’ll have the money either way. This is just something to check into.

Planning For Long-Term Care

It does happen eventually, but a lot of young retirees don’t plan for long-term care. If you’re looking at a million dollars or more in assets, then you can pay for your own long-term care. But for most of us, we’re lucky if we have a hundred thousand dollars in assets.

If you do have $100,000 or less in assets however, and you’re 65 years old, Medicaid may take care of that expense for you. But being younger and in need of long-term care puts you in a different category.

Either your insurance will cover this expense until you turn 65, and if they don’t then you will have to look into purchasing long-term care insurance. This can be an added expense for anyone who is considering retiring. This type of insurance can be anywhere from $2000 to $3000 per year.

Planning Your Retirement Around The Income Of Someone Else

I’ve seen this over and over again with friends and family. Do not plan your retirement around the income stream of someone living with you, unless it’s your spouse! You cannot depend on that income. It’s not yours and it goes where that person goes. If that person dies, decides to move, marry or whatever, that income is lost to you. Even when I point this out, they still do it.

Include The Up Keep Of Your Home And Car

It’s funny but sad that we forget to include the maintenance of our homes and cars during the retirement planning. Eventually your car will either need a mechanic, or you will need a new car. You have to factor in this maintenance. New tires, oil changes, tune ups, even a new car!

And don’t forget your home if you remain in it. Things break down. So you may be looking at a new stove, refrigerator, roof, hot water heater, washer, dryer and even new flooring at some point. You need a way to cover this expense that is bound to happen if you remain in your home for the rest of your life.

Important Points To Remember

  • You pay income tax on your pension.
  • you pay for Medicare.
  • You pay for supplemental insurance that goes up each year.
  • Don’t retire based on the income of someone else unless it’s your spouse.
  • Plan for maintenance on your home and car.

Conclusion

I’m sure I’ve forgotten something, but these retirement money mistakes can be avoided with a little insight and planning. You don’t have to know everything. The important thing to remember is ask questions if you don’t know, and look around at the people you know who are retired.

Discover their mistakes and learn from them. Plan now for what you want at retirement. Don’t wait until this year to start making retirement plans for next year.

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