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Some people don’t plan for retirement. Rather, they reach the end of their careers and hope that the savings they’ve amassed will, coupled with Social Security, be enough to pay their bills.
A much better bet, however, is to actively plan for retirement. And if that’s something you’re already doing, great.
But in the course of your retirement planning efforts, you might fall victim to certain blunders. And these specific ones could leave you cash-strapped and unhappy down the line.
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1. Assuming you can live on very little income
Many people set retirement savings goals under the assumption that they’ll be able to get by on a lot less income than they’re used to.
Now, it’s OK to assume that you won’t need quite the same amount of money as a retiree as you do during your working years — especially since you won’t have to make retirement plan contributions during retirement. But many seniors find that they need a good 70% to 80% of their former income to manage their bills comfortably as retirees. So if you tell yourself you’ll be fine living on 50% of your former income, you might wind up in a pretty tight spot.
2. Thinking Social Security will pay you more than it really will
Some people are of the impression that Social Security will replace their paychecks in full. Not so. The amount of money you collect in Social Security will most likely be a lot less than what you’re earning at your job. In fact, a good rule of thumb for average earners is to expect Social Security to replace 40% of their preretirement income.
If you really want to get a good sense of what Social Security will pay you as a retiree, create an account on the Social Security Administration’s website and access your annual earnings statements. They’ll include an estimate of your future monthly benefits.
Granted, the further along you are in your career, the more accurate those estimates are apt to be. But they’re worth looking at nonetheless.
3. Assuming Medicare will cover everything
You may be aware that you’ll face out-of-pocket costs once you’re on Medicare, like deductibles and co-pays. But you should also know that there are a number of essential health services that Medicare doesn’t cover, like dental care, eye exams, and hearing aids, to name a few.
Once you’re on a fixed income, you may not be in a position to cope with financial surprises. So it’s important to read up on Medicare ahead of retirement so you know how much to budget for your future healthcare needs.
Set yourself on a solid path
If you’re making an effort to prepare for retirement, you’re doing an important thing. But it’s essential that you don’t fall victim to these big mistakes along the way.
In fact, a good way to help ensure that your retirement planning is spot-on is to work with a financial advisor, who can review your anticipated expenses and income streams and then reconcile them with your retirement goals. That way, you get the advice of a seasonal professional who will know to avoid mistakes like these.
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