Retirement. We dream about it. We plan for it. We do everything possible to prepare for it. Just know there are some financial mistakes waiting to sabotage your retirement unless you’re aware of them.

 

Mistake # 1 – Not considering the impact of taxes on your retirement income

Every withdrawal you make from IRAs and 401(k)s will be taxed as ordinary income. You don’t get a pass because you’re retired. And don’t think you get to keep all of your Social Security. Up to 85% of Social Security can be taxed.

 

Mistake # 2 – Not considering the impact of health care costs in retirement

Even if you have Medicare, a Medicare Supplement or a Medicare Advantage plan, you will still have healthcare costs you have to pay for. The list includes:

  • Deductibles
  • Copays
  • Premiums for Medicare Part B, Medicare Part D, a Medicare Supplement Policy or some Medicare Advantage plans, as well as:
  • Premiums for vision, dental and/or hearing coverage.

 

Mistake # 3 – Not considering the impact of potential long-term care costs

Even if you plan for those healthcare costs, don’t forget the cost of long-term care. Medicare doesn’t pay for it; Medicare Supplements don’t pay for it and approximately 70% of people over the age of 65 will need some kind of long-term care during their lifetime. The median cost for long-term care in a private room at a nursing facility is well over $100,000 per year.

 

Mistake # 4 – Not having adequate liquidity and an emergency fund

In retirement, it is important to have money invested appropriately so it can be accessed when needed. If all your funds are tied up in investable assets, raising cash for an emergency may create a taxable event if you have to sell things that create a capital gain. It may also take time to get cash in hand to meet the need.

 

Part of a good retirement plan includes an emergency fund that can be accessed immediately when a need arises.

 

Mistake # 5 – Tying up too much money in your home

A house is not a liquid investment. If too much of your net worth is represented by your home, you may run into a liquidity crunch. See Mistake # 4.

 

Mistake # 6 – Retiring with a lot of debt

Debt can cripple finances and destroy any hope of having the retirement lifestyle you planned. Paying off or substantially reducing your debt load before retirement puts you in control, not outside forces. There are several plans that can help you get out of debt. Find one that works best for you.

 

Mistake # 7 – No plan for Social Security

There are several strategies for maximizing the amount of Social Security you’ll receive. For example:

  • Waiting until age 70 to begin receiving your benefit. For every year you wait to get a Social Security check between your Full Retirement Age (FRA) and age 70, the amount of the check goes up by 8% per year.
  • If you’re married and your spouse has some work history, begin the spouse’s Social Security check, based on their work history, at age 62. Then switch to the Spousal benefit when you begin taking your benefit.
  • Or, if your spouse’s benefit based on their own work history will be more at age 70 than the Spousal benefit, take the Spousal benefit as soon as possible and switch to the spouse’s benefit when they reach age 70.

There are lots of strategies to consider.

 

The Social Security website, ssa.gov, has lots of useful information. You can also create your own MySocialSecurity account at ssa.gov/myaccount which will give you access to your specific information.

 

Mistake # 8 – Spending too much money early in your retirement

Many people believe they’ll immediately spend less in their retirement years. Over time, that tends to be true. According to a study by J.P. Morgan Asset Management, household spending tends to increase two years before retirement and for three years after retirement, then declines in later years. If there is a market downturn at the time you retire, the combination of withdrawals and poor performance can quickly deplete your main source of income and make it difficult to recover. Spending too much early in retirement will only compound the issue.

 

Mistake * 9 – Taking no risk, too little risk or too much risk

It is important to consider your risk tolerance. Being too risk averse could erode the value of a savings plan. For example, if you have a very low-risk plan such as solely investing in Certificates of Deposit (CD), then the fees could end up being more than your investments’ total return.

 

On the other hand, taking too much risk could also erode the value of your plan in the event of a severe market downturn. Having a well allocated portfolio can help keep you out of risk tolerance extremes and compliment the retirement plan you’ve worked so hard to create.

 

The American Retirement Association and The American Association of Retired Persons (AARP)  have many resources that can help you in your quest to eliminate financial mistakes.

 

 

Disclaimer:

This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors; all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investments at 1-888-777-0970 or email us at info@alhambrapartners.com.