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7 Expensive pension errors to be avoided – Motley Fool



Here's a creepy statistic: More than half of senior citizens surveyed last year by the people of Global Atlantic said they have retirement planning, regrets. Their top mistakes, they reported, did not include paying off debts like mortgages before retirement and not having saved enough for retirement.

Here you look closely at some other blunders many pensioners do – and then regret it. Learn from them so you don't end up in the same boat.

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Image Source: Getty Images.

Error # 1
: Assuming security will be enough

If you think Social Security will be enough to support you in retirement, think again. It was never meant to replace all your earnings, and the average monthly retirement benefit was recently $ 1,470. It amounts to around $ 17,640 per year. If your earnings have been above average, you collect more than that – but not much more. The total maximum monthly benefit for those who are in full-time retirement was recently $ 2,861 – or around $ 34,300 for the entire year, while those who delay are starting to collect up to the 70's at $ 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, switch to the SSA Social Security Services website and set up a social security account. Once you know what to expect from social security numbers, you develop a plan to build additional income you need.

Error # 2: Don't sign up for Medicare on time

One of the worst mistakes you can make as you approach and retire is being late enrolling in Medicare. Why? Because your Part B Prizes (which cover medical services but not hospital services) may increase by 10% each year you were eligible for Medicare and not registered. That increase will then join you for the rest of your life. Yikes!

Here's the scoop: You're eligible for Medicare for 65 years, and you can sign up anytime during the three months up to the 65th birthday, during your birthday or within the three months following . The seven months are your first registration period.

Fortunately, there is a useful loophole that saves many people from the penalty: If you already receive social security benefits when you reach age 65, you should be on Medicare automatically. (Don't assume this will happen, though – take the time to check.) You can also avoid late-night traffic and be able to skip the deadline if you're still working (with the employer health service) at age 65 or if you're earning as a volunteer abroad.

Error # 3: Failure to take RMDs in time

This error may be even more expensive than the last: Failure to take your required minimum benefits (RMDs) in time.

Some pension accounts, such as traditional IRA and 401 (k) s, have RMDs and expect you to withdraw certain amounts each year. The deadline for taking the allocation each year is December 30, except for the year when you become 70 1/2. For that year you have until April 1st the following year to take your RMD. (It may be better to take it before the end of December, anyway, but don't end up being charged on two distributions in one year.) It's a good idea to set up your account so that RMD is sent it to automatically every year.

If you take too late RMD, the penalty is 50% of the amount you did not charge on time, so if you were to withdraw $ 7,000, you are looking at $ 3,500 losses! (IRS allows you to appeal to a waiver, so if you run avoul of the rule one year, then look at it.)

Error # 4: Don't Consider Fixed Annuities

It may also be costly mistake not to look at fixed annuities. If you buy one or more of them, they can provide almost guaranteed regular income, like a pension, for the rest of your life. Here is the type of income that various people may be able to secure in the form of an immediate fixed annuity in today's economic environment:

Person / People

Cost

Monthly Income

Annual Income Corresponding

] 65 year old man

$ 100,000

$ 550

$ 6,600

65 year old woman

$ 100,000

$ 527

$ 6,324

70 year old man [19659023] $ 100,000

$ 627

$ 7,524

70 year old woman

$ 100,000

$ 599

$ 7,188

65 year old couple

$ 200,000

] $ 929 [19659025] $ 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 long life insurance). Instead of starting to pay immediately, it begins to pay later, for example, when you are a certain age. For example, a 70-year-old man can spend $ 50,000 for an annuity that will start paying him $ 858 per month for the rest of his life from the beginning 80 years.

Either or both of these types of annuities can remove a lot of concern that you do not have enough money to live in recent years.

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Image Source: Getty Images.

Error # 5: Underestimate the cost of healthcare

Here's another big blunder: Failure to pay attention to healthcare when planning (and saving for) your pension. Here's why: A 65-year-old couple who retire today will spend an average of $ 285,000 in health care pocket, according to Fidelity Investments. (It doesn't even include care costs.)

One way to keep health costs under control is to be smart about Medicare, choose the plan that will serve you best and get the most out of all your program offers. For example, if you get current screenings and preventative care, you can reduce your overall healthcare costs by keeping yourself healthier.

Error No. 6: Don't Factor Long Term Care in Your Plans

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

  • 52% of those who turn 65 will need some kind of long-term care during their lifetime, per AARP.
  • The average duration for which people need long-term care is 1.5 years for men and 2.5 years for women, per AARP. (But 14% will need it for more than five years.)
  • 57.5% of those 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, per the National Association of Insurance Commissioners.
  • The approximate lifetime cost of caring for someone living with dementia in 2018 was $ 350,174, per Alzheimer's Association.
  • The median annual cost of an assisted living room and a semi-private room in nursing homes in 2017 was $ 45,000 and $ 85,775, respectively, per Genworth Financial survey.

Rich people can only pay for long-term care in their pocket, and low-income individuals simply cannot afford long-term care insurance. But if you come in between, it's smart to at least look at buying long-term care insurance. It will be much cheaper if you buy it when you are still in your 50's as opposed to the 70's.

Error No. 7: Not Having a Withdrawal Strategy

Here's a final mistake many make: Not having a plan for how to pull down their own egg over time. If you pull too much too early, you may end up running out of money too quickly. And if you pull money too slowly, you might end up not enjoying retirement as much as you can. You must have a secure withdrawal rate in your plan.

A rule of thumb – the 4% rule – has some errors, but it is still a practical way to start thinking about the issue issue. It suggests that if you deduct 4% of your nose egg in your first year of retirement and then adjust for inflation in the following years, your money should last for 30 years. There are ways to adapt it to better suit your needs, such as withdrawing more or less than 4% each year, or basing each year's withdrawal on how the market does.

Remember to consider and plan the possibility that you might live a very long life, perhaps to 95 or 100. According to the Social Security Administration, "About one of the three 65-year-olds today will survive 90 years and one in seven will live past age 95. "If you retire at 62, so many people, and live to say, 95, you look at 33 years of retirement. Between social security, savings and other income you have, you may have to support yourself for a long time in retirement.

Read up on retirement and how to plan the most efficiently. The more you know, the more financially secure your future is likely to be.


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