Let’s be honest – you’re dreaming of the day you can finally say you’re retired. Instead of long commutes or calendars jam packed with meetings, you’ll have more time to master a beloved hobby or travel to the destinations you’ve read about on your favorite travel blog. Even if retirement is years or decades away, the sooner you start planning and implementing a strategy the better. But before you get too far down the retirement planning road, avoid these retirement planning mistakes.
Retirement Mistake #1: Not taking advantage of tax-advantaged retirement accounts
Does your work allow you to contribute to an IRA or 401(k) or are you contributing to an IRA on your own? If you’re not taking advantage of these tax-advantage retirement accounts you could be making a big retirement planning mistake. And if you’ve maxed out your 401 (k), you may still be eligible to contribute up to $5,500 ($6,500 if you’re 50 or older) to a traditional or Roth IRA. A traditional IRA allows you to contribute money pre-taxed, which means you won’t pay income tax on your earnings until your money is withdrawn. With a Roth IRA, you pay taxes upfront when you make your contributions.
Retirement Mistake #2: Cashing out 401(k) accounts
If you’re thinking about cashing out your 401(k) early, you may want to rethink this potentially costly move. Early withdrawals (prior to age 59 ½) come with a 10 percent penalty and income taxes on top of the penalty. Cashing out your 401(k) will also leave you with less money for retirement, and it prevents you from allowing your money to grow in the future. All your earnings will be worth little during retirement if you make this costly mistake.
Retirement Mistake #3: Assuming Social Security will be enough
In the current environment, putting all your eggs in the Social Security benefit basket could be a costly retirement mistake you need to avoid. In June 2018, the average monthly benefit for retired workers was $1,413, according to the Social Security Administration. But based on 2016 data from the Bureau of Labor and Statistics, households run by a person 65 or older had about $3,800 in monthly expenses.
Retirement Mistake #4: Not planning for healthcare and long-term care costs
Healthcare costs are expected to see a 6 percent growth in 2019, according to Modern Healthcare. The Center for Retirement Research at Boston College found the average retirees are spending roughly $4,300 on out-of-pocket healthcare expenses annually. Without including healthcare costs in your planning, it can easily become a big and sometimes surprising expense in retirement. According to the 2018 Retirement Confidence Survey, only 19 percent of workers say they have attempted to calculate how much they’ll need in retirement for healthcare costs. Don’t fall into the same trap and wait until it’s too late to save what you need to live comfortably.
Retirement Mistake #5: Underestimating length of retirement
It’s a scary question to think about: Will your money last in retirement? There’s no way to truly know how long your retirement will last and exactly how much you’ll need. The average length of retirement is 18 years. The CDC found the average life expectancy in the U.S. is 78. But with the possibility of living much longer, underestimating how long you’ll be in retirement can be a big and costly retirement planning mistake.
Your Future is Worth Planning
Whether you’re planning to retire in a few years or a few decades, a Farm Bureau agent or financial advisor can discuss ways to help reach your retirement goals. It’s your future. Let’s protect it.®