Retirement should be one of the best times of life. Unfortunately, many seniors are left facing regrets that affect their ability to enjoy their later years.
Of course, it’s not always possible to do everything perfectly to set yourself up for a secure retirement since real life sometimes gets in the way of saving as much as you want or retiring when you planned. The good news, however, that you can avoid — or rectify — some mistakes if you know what they are.
To help ensure you’re aware of these traps that ensnare so many seniors, three Motley Fool retirement experts explain three common regrets — as well as some solutions if you find yourself facing these situations.
Claiming Social Security too early
Maurie Backman: Seniors who are entitled to Social Security based on their work history get an eight-year window to file for benefits. That window opens up at age 62 and closes at age 70. (Technically, it’s possible to sign up beyond age 70, but since there’s no financial incentive to do so, 70 is typically considered the latest age to file.)
Not surprisingly, 62 is the most popular age for seniors to claim their benefits, since it means waiting the least amount of time to get that money. There’s just one problem: If you file for benefits at 62, you’ll sentence yourself to a lower payday from Social Security throughout retirement.
You’re entitled to your full monthly Social Security benefit based on your personal earnings history once you reach what’s known as full retirement age, which is either 66, 67, or somewhere in between, depending on the year you were born. If you file at the age of 62 with a full retirement age of 67, you’ll shrink your monthly benefit by 30% and then get stuck with that lower payout for the rest of your life. Ouch.
Now say you rushed to sign up for Social Security at 62 and are realizing that was a poor choice. Well, there’s some good news. You actually get the option to undo your filing once in your lifetime, so if you withdraw your application for benefits within a year and also repay all of the money you received in benefits, the Social Security Administration will allow you to file for benefits again at a later point in time. You might, at that point, opt to wait until full retirement age to avoid a hit in benefits, or even delay your filing past full retirement age, which will allow you to boost your benefits.
The point, either way, is that if you regret the decision to claim Social Security as early as possible, you have options — but you need to act quickly. You only get a year to correct that mistake and avoid getting stuck with less monthly income for what could be a very lengthy retirement.
Assuming you’ll be able to work as long as you want
If you’re falling behind on your savings, it’s tempting to consider working longer to give yourself more time to prepare. On the surface, this seems like a smart idea. By delaying retirement, not only do you have more time to save, but you also won’t need to save quite as much.
However, assuming that you’ll be able to work as long as you’d like is a risky move that could backfire.
Nearly 40% of current retirees say they retired earlier than they expected, according to a survey from the Aegon Center for Longevity and Retirement. Of that group of people, more than one-third retired early because of health issues. And approximately 27% say early retirement was a result of job loss.
If your retirement plan hinges on being able to work as long as you’d like, your financial future could be at risk if you’re forced into retirement earlier than expected.
Of course, nobody can predict whether they’ll lose their job or develop health problems that leave them unable to work. But you can do your best to factor these possibilities into your retirement plan.
One of the best ways to prepare is to boost your savings rate. Then if you do have to retire early, it will be easier to afford it. It’s also a good idea to take steps to potentially avoid being forced into early retirement, such as taking care of your health, keeping your job skills updated, and continuing to network with other professionals in your industry.
There’s no way to know for certain when you’ll retire, and sometimes life throws unavoidable curveballs. But by preparing for the possibility that you may need to retire earlier than you expected, you’ll be ready for nearly anything.
Failing to plan for healthcare costs
Christy Bieber: Seniors often face a double shock when it comes to healthcare costs. Many end up discovering Medicare isn’t as comprehensive as they expected. And people often develop serious — and sometimes costly — health issues sooner than they anticipated.
If you weren’t planning for out-of-pocket medical expenses as a retiree, big medical bills can be a problem, especially since total costs over retirement could add up to hundreds of thousands of dollars.
Ideally, you’ll prepare for this huge expense by setting aside money over time that’s earmarked for medical care. If you’re eligible for a health savings account (HSA), investing in it is an ideal way to amass the funds you need — but if you can’t invest in an HSA, you can still adjust your 401(k) or IRA contributions accordingly.
Of course, if you’ve already hit retirement with too little saved for medical issues, it’s too late to go back in time and build a dedicated healthcare fund. In this situation, you’ll need to do two things: shop very carefully for your insurance coverage and start planning now for future medical costs.
Choosing the right Medigap or Medicare Advantage plan could give you more comprehensive coverage, albeit at the cost of higher premiums. Working this added cost into your budget might make sense since higher premiums are predictable while you can’t always guess when you’ll need costly care traditional Medicare alone won’t pay for.
Planning for out-of-pocket costs can be harder, but you can work on building a medical emergency fund even if you’ve already retired. It just may mean spending less of your money on fun purchases in order to save cash for when you develop health issues.
While it’s not pleasant to deal with unplanned early retirement, surprise health expenses, or choosing the wrong Social Security strategy, the important thing is to realize there are solutions to these common retirement regrets. The sooner you start implementing them, the better off you’ll be.
The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.