5 Retirement Mistakes You Can’t Afford to Make

According to a survey from the Employee Benefit Research Institute, just 21% of American workers are “very confident” they’ll have enough money for retirement. After many years of hard work, most people would like a comfortable retirement lifestyle. But this doesn’t just come together by itself.

Financial independence in retirement takes diligence, and it begins with creating a suitable retirement income plan. Then once you have this “retirement roadmap,” it’s a matter of sticking to it. Of course that involves taking action when you need to, like filing for Social Security at the right time or signing up for Medicare on deadline.

There are a number of costly mistakes which could greatly impact your retirement. These errors could mean higher unnecessary costs or lowering your standard of living down the road, so it’s important to be aware of these potential pitfalls. Let’s cover these retirement risks in detail.

Costly Retirement Mistakes

Not having a plan. If someone retires without a plan, their retirement is too open to chance. It may be tempting to believe Social Security will be enough for income, but research finds otherwise. Just healthcare costs can swallow up the majority of your Social Security income.

A 55-year-old couple retiring 10 years from now may have to fork over 87% of their Social Security for healthcare costs alone, according to the research firm HealthView Services. Then there are many other factors to account for: inflation, taxes, and suitable withdrawal strategies so you don’t run out of retirement savings, to name a few. The stakes are far too high for retirement to be open-ended.

Filing too early for Social Security. There are many claiming strategies for maximizing your Social Security benefits. Nevertheless, it pays off to know the basics. You can claim your full Social Security benefit at full retirement age. For most baby boomers, this age is 66. For baby boomers born in 1960 and later, the full retirement age is 67.

You’re able to file for Social Security starting at age 62. However, if you sign up before your full retirement age, your monthly income is permanently reduced. Your monthly payments will be 25% less if your full retirement age is 66 and 30% less if it’s 67. Overall it’s better to wait, unless you have unique and pressing financial circumstances. Don’t forget, you maximize your benefit if you wait until age 70 to file.

Signing up late for Medicare. When people reach age 65, they’ve attained the eligibility age for Medicare. There’s a seven-month window to sign up for Medicare Part B which starts three months before the month you turn 65 years old. For most seniors, it’s best to sign up during this period. Otherwise you’ll have to deal with lifetime surcharges on your Medicare benefits. What is the penalty for not signing up? Your Part B premiums will increase 10% for 12-month period you were able enroll in Medicare but didn’t.

If you have group health insurance via your employer, you can avoid this penalty if you enroll within eight months of departing from the job or your coverage ending. If you forego prescription drug coverage for 63 or more days, you can incur an enrollment penalty on your Medicare Part D premiums. Moreover, say you don’t get a Medigap supplemental policy during the six-month period when you’re age 65 or older and enrolled in Medicare Part B. That could lead to huge premium increases or even not having the option to purchase a Medicare supplement at all.

Withdrawal strategy is too aggressive or passive. When you retire, you’re no longer earning employment income from a full-time job. Rather, you’re living off savings you’ve put away over the years. LIMRA Secure Retirement Institute reports many retirees will need to get over 40% of retirement income from their savings. If you take too much out or make withdrawals too quickly, you run the risk of running out of money.

Depending on the account you’re withdrawing from, withdrawals may be subject to taxation (of course that could be at state and federal levels, depending on your state of residence). On the flip side, it pays off to have a withdrawal strategy that isn’t too passive. When you turn age 70.5, required minimum distribution rules, or required minimum withdrawals you must start taking from your retirement account, kick in.

Any withdrawal strategy should meet these requirements, but be in suitable amounts and at a suitable pace to last your whole retirement. If you’re looking for a conservative vehicle to meet those obligations, be secure, and enjoy guaranteed income for life, an annuity may be of interest.

Retirement income depends on you working long into retirement. Sometimes people are forced to retire early. They may go back to work to make ends meet. In other cases, retirees may enjoy working or look at their work as a means of staying socially engaged. No matter the reason, it could be a costly mistake to assume in your income plan you’ll “always” be able to work, or able to work for a long time in retirement.

LIMA Secure Retirement Institute research found 75% of pre-retirees expected to work in retirement, but 75% of retirees didn’t work. The reality is there are a number of factors which could impact work performance or even your ability to be employed. Health changes or a change in care needs for your partner or loved ones are just a few variables. In short, you may want to have your retirement financial plan not designate employment as the primary income source or as a sole income source, as there are too many factors which could affect employment capacity.

Need Help with Your Retirement Planning?

Planning income for retirement is a detailed and demanding process. If you would like to investigate financial options which emphasize market protection, a guard against inflation, and guaranteed income for life, an annuity may be a great solution. Should you be ready for help with determining whether an annuity is right for you, SafeMoney.com can assist you.

Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.