Preparing for retirement is no easy fete. A popular misconception is that a simple 401 (k) and Medicare is all you need to live your best life during your golden years. In an ever-changing world, successfully preparing for retirement at your desired lifestyle level is slightly more complicated. Working closely with your financial advisor will help to prepare you for this new era of life, and help you avoid these common pitfalls.
Understand your spending habits
For most people, it is necessary to adjust one’s lifestyle and spending habits when moving into retirement age. Spending too much money too soon is a common mistake made among the newly retired. It may help to start tracking your spending habits in the years prior to retirement. Spending habits and expenses change over time, and your expectations you had during the retirement planning process in your 40’s may not reflect your needs in your 60’s. Carefully tracking your expenditures in the years prior to retirement will give you an accurate look at your annual spending. You can then compare this to your annual budget from your retirement funds and trim excess spending where needed. For some that may simply mean planning to cook more meals instead of eating out every weekend. For others that may mean downsizing homes, services, etc. in order to stay within budget. It’s important to have regular check ins with your advisor to see how you are progressing. If you are spending your funds too rapidly, it may be necessary to make some lifestyle changes now, to ensure your comfort later. On the other hand, accurately monitoring your expenses, will help to identify where you may have wiggle room for a vacation, or a new hobby.
Account for the true cost of healthcare
It is a fact of life that our health declines as we age, generally resulting in more medical bills than in our youth. One of the most common mistakes people make when preparing for retirement is not saving enough to cover healthcare expenses. It is not enough to plan to enroll in Medicare at retirement and plan to be set for healthcare. Medicare will cover some healthcare expenses during retirement but not all. There can be large out of pocket expenses, and supplemental insurance premiums add up as well. Its also important to consider the possibility that you or your spouse may require long term care in nursing facility. Long Term Care insurance is a possibility for those who can afford the premiums. Otherwise, it is important to earmark enough retirement funds towards future healthcare costs. Expect the unexpected and plan accordingly.
It is important to stay engaged with your trusted financial advisor once retirement begins. A portfolio made up entirely of no to low risk investments means your money is no longer growing for you. During retirement, it is beneficial to continue growing your savings in case of unexpected expenses. On the other hand, a portfolio with too much risk is dangerous because retirement funds could be lost that can no longer be replaced. A diversified portfolio tailored to your specific situation with your advisor will ensure the right balance for you. It’s important to remain engaged with your investments and your planner as you enter retirement. Annual assessments can help steer your portfolio in the right direction and help ensure continued financial health. Be careful of investment opportunities that seem too good to be true. Often, they are. High yield opportunities always run high risk. Discuss any and all changes with your advisor in order to be sure its right for you at your stage in life.
The creation of a thorough retirement plan is essential. Track your expenses. Make wide allowances for future healthcare costs. Be sure to meet regularly with your advisor to ensure you are on track. Careful management of retirement savings will ensure that you are able to live comfortably in the lifestyle you planned for and enjoy your golden years.
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