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Once people are in their 50s, they start thinking about retirement. Some people start putting away more funds into an investment account or bank account, and some start calculating their retirement age (65 or 70). Surprisingly 47% of people retire sooner than planned, which could be because of company layoffs followed by the inability to find a job, health issues, or family matters. Though people think they “planned” for retirement, there are many common mistakes people make.
Retirement income is less than working income. It’s best to map a retirement budget to understand income versus expenses. Reduced income means reducing your expenses too. Typical mistake number one is not changing your lifestyle to reflect these changes. Another factor is medical expenses – underestimating medical expenses. It’s important to factor in your family’s medical history, your deductible, and what additional services you may need that medical insurance will not cover. Next, consider inflation. Most people underestimate the impact of inflation, so consider that when working on your retirement budget.
Racking up debt is easy, but paying off with a retirement income becomes more challenging. Spending money on significant house projects, shopping sprees, or traveling can add up. Enjoy life, but make sure you can afford it with your retirement income versus paying off high-interest credit cards.
Lastly, consider if you can continue to support your adult children. Is this feasible? Can you pay for your child’s college expenses, or should they apply for a student loan? Can you afford to have them live with you, or should they contribute to the household expenses? Parents love their children, but you must ensure you have enough funds for retirement. At some point, you must let your adult children spread their wings and fly.
There are a few mistakes people make that affect their retirement income permanently. One mistake is applying for Social Security retirement benefits too early. If you start taking benefits at age 62, you will get about 30% less than you would get at your full retirement age of 66. With delayed retirement credits, a person can benefit by retiring at age 70 since Social Security income maxes after age 69, assuming you work until then. Check the Social Security website to see what is best for you.
Another mistake affecting your retirement income is cashing out your pension too soon or raiding your retirement income. It may look like a lot of money, but you need those funds for retirement. Plus, there may be significant costs associated with cashing out, such as tax consequences or penalty fees, so weigh your options. Consider looking into a personal loan or home equity line as an alternative. While in your working years, take advantage of those tax breaks for people that contribute to a 401K or IRA. See if your employer offers retirement benefits and their work requirements to become fully vested.
Retirement is the time to balance your life financially, socially, and physically. It is an excellent time to be safe with your investments or health. Work with a Financial Advisor to ensure your investments are best for you. Avoid the various frauds and scams that could negatively affect you. Evaluate your living situation. You don’t want to be house-rich but cash poor. Can you afford the maintenance and expenses of your current living situation, or should you contact a realtor and look into a smaller home? Taking the equity out of your house to invest in a smaller home and putting a little extra cash in the bank may be a better financial decision for you. Retirement doesn’t mean you must be home alone and a couch potato. Keep the brain sharp through social interactions, enjoy time with family and friends, or join social groups or activities. Physical activity is essential for your brain and overall health, so join a sports team, walk, or swim.
Retirement is a time to slow down and enjoy life. Please don’t follow and make the common mistakes that lead people to struggle.
STAGES is here to educate you about the aging community.
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