Avoid These Mistakes When Planning for Retirement!

New Century IDA promotes savings and asset building. While homeownership is the main avenue we use to promote savings and asset building, there are many other reasons that saving is important. One of the most crucial reasons for saving is retirement.

A survey conducted by the Employee Benefits Research Institute found that only 14% of adults are confident that they will live comfortably after retiring, and 60% of adults ages 25 and over have less than $25,000 in savings. Not saving enough is the biggest mistake people make in planning for retirement. This is understandable if you are unemployed or underemployed. However, Dan Kadlec recommends that if you are working, you should save at least 10% of every paycheck.

If you are just in your 20’s or 30’s, you might think it’s a little too soon to start to thinking about retirement. In reality, it’s never too soon. In the article “The 7 Biggest Retirement Planning Mistakes” Dan Kadlec details mistakes to avoid.

1. Assuming you have control over when you quit. Two in five people retire earlier than planned, for various reasons such as job loss or illness. It’s critical to start saving early, while your health and career are on steady footing.

2. Ignoring the tax impact of distributions. In retirement, it’s helpful to have several different types of income, from fully taxable to tax deferred (401K) to tax-free (Roth IRA). That will give you more flexibility when drawing down assets.

                          

3. Not saving enough for medical costs. The average couple retiring at age 65 will spend $285,000 in health-care costs in retirement. Even for retirees on Medicare, out-of-pocket health care expenses have increased by 50% in the past decade.

4. Failing to lock up lifetime income. It is a challenge for today’s retirees to convert savings to a reliable income stream so that they will be able to cover fixed expenses for life. An immediate fixed annuity is a good way to address this need.

5. Retiring too soon. If you are healthy, try to wait until you are 70 to retire. You may not know this, but working a few extra years can boost your retirement income. Social Security benefits increase about 8% for each year you wait to retire past normal retirement age (66 for most Americans).

6. Underestimating longevity. About 60% of Americans live longer than they expect. At age 65, women live to an average age of 84; men live to an average age of 81.

7. Drawing down retirement savings too rapidly. You don’t want to outlive your  money. Keep your annual drawdown rate to 4% of your assets. At this rate, if you being making withdrawals at age 65, you should income until age 95.

As you think about saving and planning for retirement, keep this list in mind so you can avoid the mistakes that many people make. And remember, it’s never too early to start saving!