- A few common scenarios have the potential to impact goals in retirement.
- If you know what to watch for, you’re better able to bypass them.
- Here are suggestions across five financial planning elements.
When you work hard to save for retirement — which could last 20+ years — you deserve peace of mind. To help you enjoy it and live comfortably, keep these five common financial mistakes in mind.
Given the added free time and flexibility with retirement, it’s easy to overspend. For example, it may be tempting to increase spending on expensive hobbies or take more trips. Think about developing a budget to help you cover essential needs first, and then create a budget for lifestyle spending. You could adjust both as needed.
2. Disregarding inflation
The Federal Reserve targets a 2% inflation rate each year,1 which can add up over time. To avoid this potentially impacting your standard of living, consider what your monthly expenses could look like years from now. Personalized investment recommendations and a retirement income strategy from your advisor can help manage your income and purchasing power over time.
3. Underestimating medical expenses
Medicare does not cover certain health care expenses such as deductibles and copayments; the cost of care for dental, vision and hearing conditions; and long-term nursing-home care. Your advisor will factor in anticipated health care expenses and recommend solutions to help you prepare for uncertainty.
4. Undervaluing Social Security benefits
Social Security is a valuable source of retirement income that, unlike other income streams, has the backing of the federal government and is adjusted against inflation. Once you start collecting, it lasts your entire life — so deciding when to file for it is key.
While the age to receive your full retirement benefit is 66-67 (depending on year of birth), you can begin collecting Social Security benefits as early as age 62. But each month you wait to start (up until age 70) increases your eligible benefits.2
However, waiting may not be the right choice for everyone. Your advisor will help you determine an approach that reflects your options and your personal situation. For example, they may consider:
- Varying tax rates on Social Security income
- Capital gains and IRA withdrawals
- Health issues
- Life expectancy in your family history
5. Retiring too soon
The age at which you retire impacts your income and lifestyle. If you choose to retire at a younger age, it could result in lower Social Security benefits given a lower total of lifetime earnings that factor into the calculation. Early retirement also requires you to have more assets to pay for essential and lifestyle expenses, account for inflation and self-fund your health care before you are eligible for Medicare (generally, at age 653).
Stay confident throughout retirement
Just as your financial advisor helps you accumulate savings to retire, they can also provide personalized advice for your retirement income. Regularly meeting with them to review your goals, progress and investments can help you stay on track. You also can check your accounts and progress anytime online, from any device. Talk to your advisor to get started.