Retirement is important. If you plan well, you can enjoy your retirement with the peace of mind that financial security and independence bring. If you plan poorly, or not at all, your retirement can go horribly wrong and even lead you back into the workplace. Here are six mistakes to avoid when planning for your retirement.
1. Not having any plan: A third of adults have no financial plan for retirement, according to a recent survey conducted for TD Ameritrade. With a small margin of error for surviving retirement amid rising costs and a fixed income having an informed plan is essential.
2. Underestimating life expectancy: Retirees live longer these days. In 1955, Americans lived to be an average of 69.6 years old. The average life expectancy rose to 77.9 years by 2005, according to the National Center for Health Statistics. Life expectancies are averages; many retirees will live well into their 80s and beyond.
3. Low-balling your spending: Would-be retirees tend to be too conservative when projecting their annual expenses in retirement. A couple retiring in their early to mid-60s could spend almost as much in retirement as they did during their working career. Spending in some categories, like travel, may actually increase.
4. Failing to plan for unexpected extras: Many people have a basic retirement plan in their head, with a general idea of their assets, monthly expenses, pension income, or Social Security income. Many people fail to factor in extraordinary cash-flow needs, such as children living at home, home repairs, or extended care for aging parents.
5. Overlooking rising healthcare costs: A 65-year-old couple retiring this year will need about $225,000 just to cover medical costs in retirement, according to Fidelity Investments. This figure, which assumes retirees don't have employer-sponsored healthcare coverage, represents a 5 percent increase over 2007 and a whopping 41 percent jump from 2002. Meanwhile, the number of large employers offering retiree health benefits is falling.
6. Ignoring inflation: Don't underestimate the impact inflation will have on your retirement plan. If you're 65 today, an expense that currently costs $100 will cost $180 by the time you're 80, assuming an inflation rate of 4 percent. Plan your retirement with the assumption that the cost of living in your later years will considerably outpace that of your earlier years.
Speak with your estate planning team today to make sure your retirement plan works for you so you only have to retire once.