Retirement is meant to be a pleasant lifetime, but if you don't plan it right, the opposite may end up being true. Here are four mistakes that can track your pension and give you money and penalties at the same time.
1. Trust Social Security Alone
Although social security helps millions of elderly people stay afloat, these benefits are not designed to sustain senior citizens by themselves. If you are an average earner, you can generally expect social security to replace about 40% of your previous retirement income. However, most seniors need about twice as much as possible to live comfortably, which means that if you do not save on your own for the golden years, you will probably come up short.
Remember, although some expenses, such as commuting costs, may go away in retirement, most of your monthly bills are likely to remain the same. Some may even go up. Take, for example, leisure time. When you have more free time on your hands, you can start using more to keep yourself busy. Likewise, if you're home a lot in the day since you no longer have an office to go to, you can spend more to heat and cool your living space. Be sure to collect some personal savings before you turn off your pension because you only trust Social Security will let you crawl to make the end meet.
2. Underestimate Your Health Costs
Many seniors know that health care is a major expense they need to intervene in retirement, but a large number fail to realize how expensive medical treatment can be. Investing giant Fidelity recently shared projections that add the cost of retirement healthcare to $ 285,000 for a 65-year-old couple retiring this year.
Of course, your health care will depend on many factors, for example, if you opt for traditional Medicare versus Medicare Advantage, if you purchase additional insurance and what your actual health looks like. But know this: Fidelity's projections are just one of many estimates out there. HealthView Services, a cost forecast software vendor, reports that retirement healthcare will actually cost the average healthy 65-year-old couple today more than $ 364,000. Keep track of the cost of medical treatment, but just as importantly, scrub your savings so you finally have the money to pay for it.
3. Forget about taxes
Many assume that the elderly mostly come out of paying taxes, but that is far from true. There are several ways the IRS can come after your retirement income. First, if you house the savings in a traditional IRA or 401 (k), your retirement withdrawals will be taxed as regular income. The only way to get around this is to save in a Roth IRA or 401 (k) instead.
In addition, your social security benefits can be charged at federal level if they are only part of your total pension income. And if you live in a state that taxes Social Security, you will lose some more money at the state level as well.
Income you collect from a pension is also subject to taxes most of the time (although there are some exceptions to this rule). And if you earn investment income or interest in a non-beneficial account (such as a traditional brokerage or savings account), you also pay tax on it. The point is therefore to plan to discard some money for the IRS year after year. If you expect to be taxed in retirement, you can budget around it.
4. Not Planning for Long Term Care
Many elderly people are injured or are experiencing reduced mobility as they age. So many find that they are no longer able to live alone without any kind of help. In fact, an estimated 70% of the elderly 65 and older are experiencing a need for long-term care, either in the form of a home director, assistant or nursing home. And if you don't buy insurance to cover the costs involved, you might be in for a major financial shock.
The average aid system in the country costs $ 48,000 a year, according to the Genworth Financial's 2018 Care Cost Survey. Nursing home care is even more expensive – on average $ 89,297 for a shared room and $ 100,335 a year on average, for private.
Therefore, you really need long-term care insurance goes into retirement. The best age to search is in the mid to late 50's, because at that time you are more likely to get discounts on your health and age premiums. That said, many older people are using policies in the 60's, and if your health is decent, it's safe to pay. Otherwise, a prolonged period of care can effectively wipe out the pension savings so that you break and vulnerable later in life.
Retirement can be a scary prospect from an economic perspective, but it doesn't have to be. Remove these bugs and you will avoid much of the stress so many of today's older face.