Although retirement is a milestone, many of us look forward to, a large number of seniors coming up on shaky grounds financially when their golden years actually kick off. However, much of it boils down to poor planning. If you want to enjoy the golden years in full, remove from the following traps that would otherwise create a world of economic stress.
1. Don't Estimate Your Expenditure Exactly
Many people assume that when they go into retirement, their expenses will magically fall in a very big way. But the chance is that the bulk of your cost of living will remain the same, or even go up when you stop working.
A more sensible approach is therefore to assume that you need about 80% of your earnings before retirement to live comfortably when you stop working. Hit that goal and you will be less likely to face financial stress when you are older.
2. Don't Understand How Much Income Your Savings Will Give You
Many people are fortunate enough to retire with a significant portion of the savings. But the number you see when you look at your balance cannot actually translate into as much income as you think it would.
Imagine you are looking at retirement with $ 500,000. It's a lot of money in theory, but the Americans live longer these days, so it's not unthinkable that you might need your savings to last 30 years. If so, you would be wise to follow the 4% rule, which states that if you begin to withdraw 4% of your own owner's value in your first year of retirement and then adjust subsequent withdrawals for inflation, the savings should be for 30 years. But 4% of $ 500,000 is just $ 20,000 a year in income – not much.
Another thing to keep in mind is that if you don't remember the pension savings in a Roth IRA or 401 (k), you're going to lose some of your tax deductions. The $ 20,000 just referred? It may end up being more than $ 15,000 when the IRS collects its share. Before you retire, understand how much income your savings will actually give you, and make sure it's enough to keep up with your estimated expenses.
3. Not to be smart about social security
Many seniors rely on Social Security to pay the bills in retirement, and the chance is that one day you will do the same. But if you add benefits prematurely, you will reduce what may end up being a fairly substantial revenue stream over the golden years.
Your social benefits are calculated on the basis of how much you earn during the highest paid 35 years of work. However, the age you envisage these benefits can cause them to go up, go down, or stay the same.
If you fill in full retirement age – which, depending on the year of birth, is either 66, 67 or somewhere in between – you get the exact monthly benefit your profit history entitles you to. If you archive before full retirement age – you are allowed to do so as early as 62 years – you get your benefits faster, but reduce them in the process. And if you delay the benefits beyond full retirement age, you increase them by 8% a year until 70, where it doesn't make sense to stay longer.
There is no such thing as a right or wrong age where to claim social security. What you need to do, however, is to assess your own needs when deciding when to take benefits. If you go into retirement with less savings than you want, you will probably be wise to file for full-time or out-of-life insurance to avoid a reduction in benefits.
The more planning you do for retirement, the lower your chances are to struggle over the golden years. If you're miserable about walking alone, get help from a financial advisor to guide you together. There is a far better bet than winging it, making poor decisions and lamenting them at a time when you are already financially vulnerable.