7 Costly Retirement Mistakes to Avoid — The Motley Fool


This is a frightening statistic: more than half of the retirees surveyed last year by the people of Global Atlantic said they regret retirement planning. His main mistakes, they reported, included not paying debts like mortgages before retirement and not having saved enough for retirement.

Here's a closer look at some other mistakes that many retirees make, and then repent. Learn from them so you do not end up in the same boat.

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Image source: Getty Images.

Error No. 1: badume that Social Security will be enough

If you think that Social Security will be enough to help you retire, think again. It was never intended to replace all of your work income, and the average monthly retirement benefit was recently $ 1,470. That equals about $ 17,640 per year. If your earnings have been above average, you will collect more than that, but not much more. The maximum monthly total Social Security benefit for those who retire at their full retirement age was recently $ 2,861, or approximately $ 34,300 for the entire year, while those who are delayed starting to collect until age 70 they reach $ 3,770 per month, or $ 45,240 per year.

To find out how much you can expect from Social Security based on your earnings so far, go to the Social Security Administration (SSA) website and set up a Social Security account. Once you know what to expect from Social Security, develop a plan to generate any additional income you need.

Mistake No. 2: Not enrolling in Medicare on time

One of the worst mistakes you can make as you approach and enter retirement is to enroll late in Medicare. Why? Because your Part B premiums (which cover medical services, but not hospital services) can increase by 10% for each year you were eligible for Medicare and did not sign up. That increase will stay with you for the rest of your life. Oh!

Here's the scoop: you are eligible for Medicare at age 65, and you can register at any time within three months prior to your 65th birthday, during your birthday month or within three months. Those seven months are your Initial Enrollment Period.

Fortunately, there is a useful loophole that prevents many people from facing the fine: if you are already receiving Social Security benefits when you turn 65, you must enroll in Medicare automatically. (Do not badume this will happen, however, take the time to verify). You can also avoid the late enrollment penalty and be able to skip the deadline if you are still working (with health care coverage provided by the employer) in 65 years, or if you are volunteering abroad.

Error No. 3: Do not take RMD on time

This error can be even more expensive than the previous one: not taking your required minimum distributions (RMD) in time.

Some retirement accounts, such as traditional IRAs and 401 (k) accounts, have RMD, expecting you to withdraw certain amounts each year. The deadline to take your distribution each year is December 30, except in the year in which it reaches 70 years and a half. For that year, you have until April 1 of the following year to take your RMD. (However, it may be better to take it before the end of December, lest it end up being taxed with two distributions in a year). It is a good idea, if possible, to set up your account to have your RMD sent. To you automatically every year.

If you are late to take your RMD, the fine is 50% of the amount you did not withdraw on time, so if you had to withdraw $ 7,000, you are losing $ 3,500! (The IRS allows you to appeal for an exemption, so if you oppose the rule for one year, investigate that).

Error No. 4: Do not consider fixed annuities

It can also be a costly mistake not to consider fixed annuities. If you buy one or more of them, they can provide you with almost guaranteed regular income, such as a pension, for the rest of your life. This is the type of income that several people could get in the form of an immediate fixed annuity in the current economic environment:



Monthly income

Annual equivalent income

65 year old man

$ 100,000

$ 550

$ 6,600

65 year old woman

$ 100,000

$ 527

$ 6,324

70 year old man

$ 100,000

$ 627

$ 7,524

70 year old woman

$ 100,000

$ 599

$ 7,188

Couple of 65 years

$ 200,000

$ 929

$ 11,148

70 year old couple

$ 200,000

$ 1,032

$ 12,384

75 year old couple

$ 200,000

$ 1,189

$ 14,268

Data source: immediateannuities.com.

Instead of, or in addition to, fixed annuities, consider a deferred fixed annuity (sometimes called a longevity insurance). Instead of starting to pay immediately, start paying at a future time, as when you reach a certain age. For example, a 70-year-old man could spend $ 50,000 for an annuity that will start paying him $ 858 per month for the rest of his life after age 80.

Either or both types of annuities can eliminate the worry that you will not have enough money to live in later years.

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Image source: Getty Images.

Error N ° 5: underestimate the cost of medical care

Here's another big mistake: do not consider health care costs when you plan (and save) for your retirement. Here's why: A 65-year-old retiree today will spend, on average, a total of $ 285,000 out of pocket in health care, according to Fidelity Investments. (That does not even include long-term care expenses).

One way to keep health care costs under control is to be smart about Medicare, choose the plan that works best for you, and make the most of every offer in the program. For example, if you get applicable screenings and preventive care, you can lower your overall health care costs if you stay healthier.

Error No. 6: Do not consider long-term care in your plans

A problem that is ignored even more than the costs of medical care is that of long-term care. It is easy to badume that you will not need it, but there is a good chance that you will, and it is not cheap. The insurance that covers long-term care is not cheap either, but again, it's because the care is expensive and you may need it. To consider:

  • 52% of those who turn 65 will need some kind of long-term care during their lifetime, according to AARP.
  • The average duration that people need for long-term care is 1.5 years for men and 2.5 years for women, according to AARP. (But 14% will need it for more than five years).
  • 57.5% of people who turn 65 between 2015 and 2019 will spend less than $ 25,000 on long-term care in their lifetime, while 15.2% will spend more than $ 250,000, according to the National Association of Insurance Commissioners.
  • The approximate lifetime cost of caring for a person living with dementia in 2018 was $ 350,174, according to the Alzheimer's Association.
  • The average annual cost of an badisted living facility and a semi-private room in a nursing home in 2017 was, respectively, $ 45,000 and $ 85,775, according to a Genworth Financial survey.

Wealthy people could simply pay for long-term care out of pocket, easily, and low-income people simply may not be able to afford long-term care insurance. But if you stay in the middle, it's smart to at least consider buying long-term care insurance. It will be much cheaper if you buy it when you're still 50, instead of 70.

Error No. 7: Not having a retirement strategy

Here is one last mistake many people make: not having a plan on how they will reduce their savings over time. If you withdraw too soon, you may end up running out of money too soon. And if you withdraw funds too slowly, you may end up not enjoying retirement as much as you could have. You must have a safe withdrawal rate in your plan.

A golden rule, the 4% rule, has some flaws, but it is still a useful way to start thinking about the retirement problem. He suggests that if he withdraws 4% of his savings in his first year of retirement and then adjusts inflation in subsequent years, his money should last 30 years. There are ways to adjust it to better suit your needs, such as withdrawing more or less than 4% each year, or basing each year's withdrawal on market performance.

Remember to consider and plan the possibility that you can live a very long life, perhaps reaching 95 or even 100. According to the Social Security Administration, "approximately one in three of 65 years of age will live beyond 90 years, and one in seven will live beyond 95 years " If he retires at 62, as many people do, and lives for, say, 95, he is looking at 33 years of retirement. Between Social Security, your savings and any other income you have, you may have to stay in retirement for a long time.

Read about retirement and how to plan more effectively for it. The more you know, the more secure your financially secure future will be.

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