We've all heard the saying, "From every mistake comes a lesson learned", and I'm sure we can all agree with that. As a financial advisor, I see it as my job to help my clients learn lessons without having to make mistakes, but rather learn from history, and the mistakes of others. Along those lines, I wanted to present some retirement lessons that retirees before you have learned, and lessons that would be valuable for you to avoid in your retirement lifetimes.
1. You Might Have More Money at the End of Retirement Than You Did At the Beginning
If you focus on the four percent rule, and you take care of your retirement investments, you could potentially be making more on your investments than you are taking out for living expenses. If that is the case, you may end up having more money to leave to your heirs, instead of depleting your money during your retirement years. Seeing that this could be the case may allow you to spend more in retirement, simply because your money is not being used up as fast as you would have expected it to be.
2. Your Social Security Increase Could Be Eaten Up by Medicare Premiums
Social security offers small increases frequently, and these are generally based on inflation and the cost of living. But your Medicare premiums are going to go up, too. Often times those premiums will take up most or all of your social security increase, and in some cases your social security benefit may even go down because of the rise in Medicare premiums.
3. Your Expenses May Go Down, But Healthcare Related Costs Could Go Up
Often the expenses you have will be lower in retirement. A lot of people pay off their mortgages and cars before they retire, so they do not have the kinds of expenses they had when they were working. But as you age your healthcare costs are probably going to rise. They do for most people, and they are something you should be prepared for. With that preparation, you can reduce the risk of not having enough money in retirement.
4. Your Costs Can Go Up from Required Minimum Distributions
When you are required to take money from your retirement accounts, you have to add that money to your taxable income. That is generally not too much of a problem early on because the distributions do not have to be large. But as you continue to age you will have to take larger distributions each year. Doing that means your taxable income will rise, and that could mean your retirement money is depleted faster.
5. You Still Want to Fill Your Days and Weeks with Things To Do
Depression in retired people is very common, because they have gone from working to having a lot of leisure time. They may not feel useful, and can really struggle with what they should be doing to stay busy. But keeping busy is important, and you will want to make sure you have plans in retirement. Relaxing and resting are good things, but you also need to be able to have some structure to your days and a few passions or hobbies that you appreciate and enjoy.
6. You Can't Wait Out a Bad Market Nearly as Easily
In your working years, you can wait if a market is bad, because you have money coming in. You do not need to sell your stocks in a down market because you have to have money right then to pay your bills. But in retirement that is a more serious concern. You may need money from your stocks or other accounts to pay bills, and if you are in the middle of a down market you could be stuck taking money out when it hurts you the most financially. If you plan accordingly and have at least five years of money that is not in the market, you can protect yourself from downturns much more easily.
Retirement planning isn't an exact science, and the correct path is different for everyone. Understanding the paths of others, and the pitfalls they've experienced, can make for a much smoother ride.
This content created by Gary Scheer in conjunction with Fusion Capital Management.