When planning for retirement, many people overlook several critical aspects that can significantly impact their financial security and overall quality of life during their golden years. Here are 17 things most people forget to plan for in retirement.
Long-term or in-home care services
When thinking about how your after-career years will play out, needing help with day-to-day tasks may be far from your mind. The cost of long-term care needs is often underestimated, and Medicare may not cover private in-home care after acute care needs.
Adapting homes for accessibility
If you’re in good health with no mobility issues, you may completely neglect your future mobility issues. Your knees aren’t getting any younger. Expenses related to making a home more accessible, such as adding ramps or widening doors, can be significant.
Healthcare costs before Medicare eligibility
Planning for health insurance costs before age 65 is crucial, as early retirees may face substantial premiums. According to the Fidelity Retiree Health Care Cost Estimate, “a single person age 65 in 2023 may need approximately $157,500 saved (after tax) to cover health care expenses in retirement.” If you haven’t done so yet, estimate your medical expenses in advance and figure that into your retirement plan.
Taxes on retirement income
Taxes, including those on Social Security benefits and retirement account withdrawals, can reduce net income. Andrea Coombes at NerdWallet reminds us, “A chunk of money—assuming it’s in a 401(k), traditional IRA, or similar tax-deferred account—will go to taxes.” Diversifying with after-tax accounts, such as a Roth IRA, means you put money in after you’ve paid taxes, so investment earnings come out tax-free when you retire.
Inflation’s impact on savings
Inflation can erode the purchasing power of retirement savings, requiring a more significant nest egg than initially estimated if you only look at the costs of things as they are now. Inflation “rises somewhere near 2% to 3% each year. Moreover, inflation in regards to medical aids can range from 2% to 5%, and you must not forget to consider it while accounting [for] your retirement plan,” investment advisor Prashanth Prabhu says on LinkedIn.
Underestimating life expectancy
Many people fail to plan for a more extended retirement period, potentially leading to a shortfall in funds. We live longer than previous generations, which can be confusing when figuring out how long our retirement might be. “The average woman reaching the age of 65 today will live until 87. The average man who is 65 today can expect to live until 84,” writes Donna Freedman for MoneyTalksNews.
Failure to save early
A FinanceBuzz survey released results stating that “a whopping 35% of respondents said that they have no retirement savings at all.” Starting to save for retirement late in one’s career can make it challenging to accumulate sufficient funds. If you haven’t begun to save, start now, no matter where you are in your career.
Claiming Social Security too early
Taking Social Security benefits at age 62 can result in permanently reduced payments compared to waiting until full retirement age or later. The Social Security Administration says, “Social Security retirement benefits are increased by a certain percentage for each month you delay starting your benefits beyond full retirement age. The benefit increase stops when you reach age 70,” making that age your optimal time to collect if you can manage to wait.
Relocating without thorough research
Some people have always dreamed of retiring to a specific location, but dreaming and doing the research are different things. Moving to a new location without spending extended time there first can lead to dissatisfaction and unexpected costs.
Not having a detailed retirement budget
A realistic retirement budget is essential to determining if you have enough savings to cover your expenses. They say to save 25 times your average expenses in a year. However, planning for pop-up costs like a new car, roof, or other large purchases is essential. Also, remember that you will have more downtime, so how will you spend that, and what will the cost look like?
Ignoring the need for a diversified income stream
Relying solely on one source of income, such as a pension or Social Security, can be risky. Investing may seem like something for the rich but can be quite attainable for everyone; just be sure to diversify your portfolio. At the minimum, a diversified portfolio should be spread across multiple sectors, including stocks, bonds, mutual or index funds, CDs, real estate, and cash.
Forgetting to adjust asset allocation
As retirement approaches, shifting to a less aggressive investment strategy can help protect savings from market volatility. The suggested percentage of stocks in your portfolio is 100 minus your age. If you’re 60, your stocks should be 40%, and the other 60% should be in something safer, like bonds.
Overlooking estate planning
Proper estate planning, including wills and trusts, ensures that assets are distributed according to one’s wishes. This includes communicating these plans with your heirs and any loved ones involved. Dramatic will readings where everyone is surprised who gets what is only fun in the movies.
Not considering charitable giving strategies
Planning for charitable donations can provide tax benefits and fulfill philanthropic goals. What are your charitable desires? How much will go to heirs? Consider using donor advised funds (DAFs), philanthropic foundations, charitable annuities, and charitable trusts. Remember that qualified charitable distributions (QCDs) are among the best ways for older retirees to give to charity.
Underestimating the cost of hobbies and travel
Yes, you’ll be losing the cost of commuting and work attire. But think about how much more expensive weekends are than Mondays. Once you retire, every day becomes Saturday, and activities that enrich retirement life, such as travel and hobbies, can be more expensive than anticipated.
Not investing in long-term care insurance early
Should your care needs change, either suddenly or slowly, it will be necessary to understand what you can afford in the long term. Purchasing long-term care insurance at a younger age can result in lower premiums and better coverage for those uncertainties in retirement.
Lack of a backup plan for retirement income
While more than half of today’s workers plan to continue working in retirement, 19% of adults aged 65 and older are actually employed, according to the Pew Research Center. Having a contingency plan in case of an unexpected early retirement due to health issues or job loss is crucial.
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