Mistakes People Make With Their Retirement Benefits
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Not getting everything exactly right remains a common inevitability about retirement planning. One isn’t always very sure about how their needs and expenses may change in the future. The best thing they can do is guess and estimate. But because of the unpredictability of the future, forecasting retirement benefits can sometimes lead to mistakes rather than good decisions. Let us have a look at past trends to understand the average American behavior when it comes to saving for retirement.
A glance at the stats
A 2016 estimate states that the median saving limit for families with wage earners between the ages of 50 and 55 years was just $8,000. The Economic Policy Institute also reported something similar. It revealed that the median savings for people between the ages of 56 and 61 was only $17,000.
Another 401(k) account value survey that was recently conducted in Vanguard, discovered that the average value of savings for a 65-year-old investor was only $58, 035.
These amounts can seem satisfactory for a year, but may not be accurate for a life after retirement. Money experts say that you should be able to save five times more than your annual salary by age of 50, six times by the age of 55, and seven times by the age of 60.
Another study revealed that only 27% of households have a well sought out pension plan. This is backed by the fact that only 33% of households in the US have a defined 401(k) plan.
Sometimes people are just complacent and feel they have plenty of time to save up. Other times, people are simply not aware of the mistakes they commit with retirement benefits.
Most common Retirement Benefits Mistakes that Retirees are Guilty of Making
1. Failing to do the math
Getting the most out of your retirement benefits is not always a work of assumptions. It has to be a precise number-game that can be estimated through personalized calculations. We are usually tempted to search for a shortcut to save millions for retirement. The figures in our mind can be self-satisfying. But these don’t include real-life assets that we may need, to cover the costs of our unique lifestyle, requirements, income, and expenses that come with age. If you wish to pursue your retirement goals, you need to estimate how many years of retirement are you looking at. This will depend on the age at which you plan to retire. Most people think of major expenses like healthcare, spending on a child’s education or marriage, etc, but tend to overlook smaller expenses like insurance premiums, grocery expenses, etc. Remember to include all probable expenses that you will likely incur on a day-to-day business.
2. Retiring with debt
Going into retirement with debt is the most common mistake retirees make while arranging finances. Debt remains a major threat to your financial security at any stage in life, but even more so when you are not working anymore. During retirement, the income confines to a limited amount. This means you have fewer avenues to increase your income in order to pay off your debt. What’s even worse is the fact that you end up losing a substantial part of your life’s savings to high interest rates every month. Debt that might have been manageable along with a steady job, can become a burden in retirement. The problem can seem worse in the case of negative amortization loans or credit cards.
3. Not paying attention to Social Security
It is always in the best interest to pay attention to Social Security and understand how and when it can benefit you. However, most retirees take it as a cumbersome task. The popular notion is that you have to circumnavigate the maze of 100s of system rules and claiming options to avail Social Security benefits. But it is only once you start researching, that you can come to an informative conclusion about these benefits. Many citizens take Social Security as a guaranteed criteria and claim it at an early stage. But this costly mistake keeps them from enjoying their retirement benefits to the full extent. Here’s an example:
It is believed that the Social Security rate increases by 6-8% from age 62 to 70. You can take benefits as early as when you are 62, but if you wait till 70, you will get increased benefits of up to 1% or 0.5% each month.
4. Overconfidence about wealth
One might take retirement as a phase of free income with no work. Though it feels good to think about savings as your safety net, it also comes with a risk of getting carried away. Even those who save their entire lives, sometimes fail to plan how to use these savings over the course of many years. Their savings pool injects an element of overconfidence in their minds. Being careless about wealth and savings is a common mistake that people make, but it is also something that can be easily avoided with proper planning and frugal living.
To sum it up
Retirement planning may seem tedious on the outside, but is rather logical and straightforward in its essence. The sooner you start detailing, preparing, and calculating, the better and more comfortable is your life after retirement. Retirement planning is not tough, it just requires a few extra steps to ensure that you have a relaxed, stress-free, and finally secure future.
Are you afraid of committing these mistakes in your retirement planning strategy? Contact financial advisors for advice that can put you on the road to a financially secure retirement.