Are you approaching retirement and unsure of your next steps? Do you know what is most important to you as you enter retirement? Here at Active Wealth, we want to make sure that your retirement is fulfilling and worry-free. According to a 2018 study by Global Atlantic Financial Group, more than half of retirees have retirement regrets. We’ve compiled a list of the top 5 most common ones and ways you can avoid having the same regrets.
Failing to make a detailed financial plan
Many people find themselves approaching retirement age and realize that they have underestimated how much they will need. According to the Employee Benefit Research Institute’s 2016 Retirement Confidence Study, only 21% of those surveyed were very confident their savings would cover their expenses after they left the workforce. There are a lot of things that factor into this. Many retirees regret that they did not start saving earlier, they didn’t budget properly (or at all), or that they weren’t frugal enough in the years leading up to their retirement.
Many retirees will also claim Social Security too early, leading to a decreased payout. If you decide to start drawing Social Security early, your benefits will be less than if you decide to draw Social Security at full retirement age or later. For example, say you decide to take Social Security at your full retirement age – 66 years old – and your benefit is $2,000 a month, $24,000 a year. If you take Social Security early, at age 62 for example, your benefits will be $1,500 a month, $18,000 a year. However, if you wait until age 70, your maximum age, you will receive $2,640 a month, $31,680 a year. Another mistake that many retirees make is expecting their Social Security benefits to completely provide for them. Most of the time, Social Security won’t be nearly enough. In 2019, the average monthly benefit was only $1,461, which comes out to only $17,532 per year.
The good news is that you can avoid a lot of these mistakes by starting to plan as early as possible for your retirement. Avoid accumulating too much debt that you will be responsible for paying off during your retirement. This frees up some of your income to put towards other things. Try not to prematurely withdraw funds from your IRA. The more you withdraw before retirement, the less you have when you really need it. Also, never forget to account for taxes when putting together your budget for retirement. You should also try to diversify your portfolio and don’t be afraid to invest. Brent Weiss with Facet Wealth recommends having different buckets of retirement assets that are taxed differently. This can give seniors a lot of flexibility when it comes to creating income and reducing their tax burden during retirement. Another thing to consider would be putting your money into a Roth IRA, if you are eligible. If you need to make some changes to your financial portfolio or would like some advice on how to avoid these mistakes, seek help from a professional who can give you expert advice that applies to your individual portfolio.
Not setting goals for retirement
Retirement can be a jarring transition for some. To go from a structured routine to an open schedule is often overwhelming for many new retirees. Before you retire, you should always sit down and think about your goals for retirement. What do you want to accomplish? Do you have other passions that you can fill your free time with? What is going to make you want to get up in the morning now that you aren’t going to work?
Many retirees decide they want to start a second career. According to a survey conducted by retirement-planning website RetiredBrains.com, 86% of business professionals plan on working after they become eligible to retire, and many of them will seek out new career paths as they extend their working years. If you have something that you’re passionate about, it’s never to early to explore what that would look like in your retirement years. Spend some time thinking about what you love and what motivates you. This could be an option for a second career. Consider whether you will need extra training. Also make sure to remember that your retirement is what you make it. Don’t be afraid to embrace a slower pace for the first few months. You’ve worked hard for 20+ years and deserve some time to rediscover what you’re passionate about. An important thing to note is that, even if you are taking it easy to begin with, have a plan for your free time. Structure your day so that you don’t let the whole day slip by you and feel like you’ve wasted it. This will make your transition into retirement easier.
Along with setting goals for retirement, you should also discuss with your partner your expectations for retirement. Don’t wait until you’ve both left the workforce to talk about what you want out of your retirement. Adjusting to life as a retired couple will have its challenges and it’s important to talk about expectations. Patti B. Black, a CFP from Birmingham, Alabama says that different expectations can cause serious ruptures in relationships. She also says this could be the reason why divorce rates for people 55 and older have increased, even though the overall divorce rate has decreased. Set boundaries for your retirement. Even though you’re both at home, you will want to carve out time to do things separately as you did while you were employed. Both of you might have different passions and it’s important to discuss them so that you can be supportive of each other during this transitional time.
Not focusing on what really matter
Retirement gives you a lot of time to do things you didn’t have time for while you were working. Where there is potential, there is also risk. Start developing a healthy lifestyle that brings you daily happiness. This will help you successfully transition into retirement because you have a familiar framework. Don’t hold onto your stuff, hold onto your experiences. Many retirees regret holding on to so many keepsakes and things, rather than just holding onto the memories and the experience itself. If you decide to downsize before or during your retirement, sifting through your stuff can be a monstrous task. Make the decision to help yourself out by keeping your home and uncluttered. Don’t wait to take your dream trip. Travel while you can and see the world – just make sure it is something you’ve planned for in your retirement budget.
Some retirees experience some social drawbacks to retiring, as well. If you’ve been in the workforce for any amount of time, you will have developed a peer group. This peer group is there for social outings and for deep conversation that strengthens your bond. When you retire, don’t lose touch with your peer group. Especially if you retire early, try and find some people who you can spend time with and lean on for support outside the home. It is not unusual for people to retire early and find that the people they want to spend time with are still working. Try to avoid this uncomfortable transition by finding social activities to occupy your time. This can be taking a fitness class, joining a hiking or art club, or volunteering at your local animal shelter. All of these activities help to reduce any social drawbacks or discomfort new retirees feel.
Another group to keep in touch with are your adult children. When you retire, you have more time to visit with them and keep them in your life. If you have grandchildren, make it a point to visit several times a month. You will never regret those times spent with your young grandchildren, watching them grow up. You will also never regret spending time with your adult children. As your children grow up, your relationship changes and you might not see them as much. Retirement is the perfect time to make up for all the times you might have missed while you were working.
Underestimating the risks of retirement
You should never forget that retirement is a risk. Leaving behind a steady paycheck is a huge risk and you should treat it as such. As we mentioned above, seek professional help to guide you through this transition. You should have a plan in place that protects your wealth and keeps you in a good place money-wise. Part of this planning process should include a plan for a spouse’s death. People in retirement age are more likely to have to deal with the death of a spouse than those in other stages of life. You should have a plan for this, should you have to endure it. By planning for a spouse’s death, you are ensuring that you have the space to make the decisions that need to be made and the financial means to continue.
You should also never bypass long-term care insurance. Insurance consultant Zack Taylor says that 70% of Americans over the age of 70 will require some form of long-term care at some point. Don’t wait until you need it to plan for it. Have a plan for how you will pay for it, should the need arise. Waiting until it’s necessary can put you in a difficult position financially. Taylor also says that the average amount of time people need long-term care is five years and the average annual cost for long-term care is $100,000. This means you would need $500,000 to afford to put your spouse in a long-term care facility. This kind of money is something you have to prepare for. Don’t prepare for a “might” situation, prepare for a definite situation.
Retirees often regret decisions they’ve made regarding their home or future living situation. They may get to retirement age and regret the large home they purchased less than 10 years ago. Always be thinking about the future when purchasing a house. You are responsible for the mortgage on your home whether you have a steady income stream or not. Make sure your home is something that is appropriate for you in the future. If you think you might want to downsize, start researching your options early. Without children in the home, downsizing becomes something for couples to consider before they reach retirement age. Kevin M. O’Brien, a CFP from Northborough, Massachusetts, says that moving may be the right decision, but you should never make that decision too quickly. Buying a home is an investment no matter when you do it. O’Brien believes you should rent in areas you’re interested in living during your retirement before making a purchase. You should also consider state and city taxes when deciding where to live. It might be better for you to live in certain cities or states during retirement as a tax-reduction strategy. If you think this might be the case for you, talk to a professional who can help you work out all of your options. Never leave your future to chance.
Has this article sparked anything in you? Do you think you’re making the right choices for your retirement or are you afraid you’re headed down the wrong path? We would love to sit down with you and discuss your retirement. We always want to make sure that you have a fee-efficient, market-efficient, and tax-efficient portfolio. As fiduciaries, we’re here for you and we put your interests over our own.
Active Wealth Management is a private wealth management firm located in Atlanta, GA. Our team is passionate about educating clients in order to empower them to invest and retire successfully and we believe in managing our client’s assets actively. Active Wealth Management works with three primary groups of people; pre-retirees, retirees, and business owners.
Active Wealth Management is led by our Founder and President, Ford Stokes, and by our Senior Vice President, Brandy Seats. They aim to help clients understand their current financial situation, analyze their current portfolio, and develop a customized financial plan to accomplish their goals. If you would like more information about the firm, please visit our website, https://activewealth.com, or call our office at (770) 685-1777. You will not be passed off to another advisor. You will meet with either Ford or Brandy. You can schedule directly into their calendars at https://activewealth.com/consult/.