The 4 Most Common Retirement Mistakes

Whether it’s for your career, a business initiative, or even relationship advice, gleaning insight from those with experience can prove invaluable. The same holds true for retirement planning: especially when you consider that according to the Employee Benefit Research Institute (EBRI), 70% of retirees have regrets about their savings and investment habits in their younger years.

In this post, we’ll review four of the biggest regrets retirees have and how you can avoid them.

Not eliminating unnecessary investment risk

Typically, you should invest more conservatively as you get older: meaning the percentage of equity holdings (stocks) invested in your retirement accounts should decrease. This is done to reduce risk, which is especially critical as you may not have the luxury of waiting for markets to bounce back after a dip.

While the actual number varies per each individual’s situation, a general rule of thumb is to subtract your age from 100 to pinpoint which percentage of your investment portfolio to keep in stocks. “Safe” assets—such as bonds and CDs—should round out the remainder of your portfolio.

It’s important to know that due to longer lifespans, some experts have modified this rule and now recommend you subtract your age from 110 (or more!) to keep from running low on funds.

Despite this widely available knowledge, a recent Fidelity report claims investors—specifically 37.6% of Baby Boomers—are exposing their retirement accounts to unnecessary risk via too much investment in stock.

Obtaining a risk report from your financial advisor will not only tell you if you’re overexposed to risk but also arm you with the knowledge you need to make changes, accordingly.

Not preparing for long-term care

U.S. Department of Health and Human Services data reflects that someone with a 65th birthday today has an almost-70% chance of needing some form of long-term care (LTC) services in his or her remaining years. What’s more, women are expected to need 3.7 years of care compared to 2.2 years for men. An estimated 20% of today’s 65 year olds will require care for longer than 5 years.

Many people incorrectly assume Medicare covers long-term care. The truth is that it doesn’t, except in very limited circumstances. Long-term care insurance policies typically cover out-of-pocket expenses that accompany home care, assisted living, and nursing homes: benefits not covered by Medicare or other public programs. Even if you qualify for Medicaid, you’re still restricted to facilities that accept payments from the program—whereas you will enjoy more care choices with an LTC policy.

While everyone’s situation is different—especially if you have a family history of illness at a young age—experts recommend you obtain a policy in your mid-to-late fifties so you can lock in a lower premium.

While there are several reasons for this, the primary one is that you must qualify for long-term care insurance—meaning you must be healthy to buy coverage. Many people begin seeing a slight decline in health in their 50s, explaining why 24% of people aged 60-64 who submitted long-term care applications were denied in 2019. This number increased to almost 33% for those between the ages of 65 and 69 and was significantly higher for those aged 70+.

Another reason to buy a policy when you’re younger is that long-term care premiums are based on your age when you apply. That said, you don’t want to do so too early since people 70 or older file more than 95% of long-term care insurance claims. In other words, if you buy a policy in your 40s, you’ll likely pay premiums for more than two decades before you ever file a claim.

While there are alternatives to stand-alone LTC policies—including self-funding—a financial advisor can help you evaluate your options and make recommendations based on your given situation.

Not understanding Medicare & supplemental plans

Covering over 62 million Americans, Medicare is the most common insurance option for retirees. It’s therefore difficult to argue against Medicare as an essential component of retirement planning.

That said, one might assume a large proportion of people have at least a broad overview of Medicare and how it works. Yet, a recent Harris Poll survey claims more than 7 out of every 10 participants over age 50 wish they had a better understanding of Medicare coverage!

In fairness, there’s no disputing that Medicare particulars are sometimes very complicated and—quite frankly—overwhelming. However, there are some common (and costly) mistakes you can easily avoid without exerting too much effort in the process.

For example, if you sign up during the initial enrollment period, Medigap policies cannot deny you coverage or charge you more for any preexisting conditions. Also keep in mind the amount of your income dictates your Medicare Part B premiums and any potential surcharges you may encounter.

Visit our online library of articles to further educate yourself on a variety of Medicare topics.

Claiming Social Security too early

The age at which you decide to collect Social Security will determine your monthly benefit amount. Choosing to receive benefits before you reach full retirement age (when you’re entitled to 100% of your benefits) means your monthly benefit will get hit with a permanent reduction.

More specifically, Social Security benefits increase by approximately 7% each year between age 62 and your full retirement age (and then rising approximately 8% each year between your full retirement age and age 70).

To illustrate, let’s assume the full amount of your Social Security benefit—what you would receive if you wait until your full retirement age—is $1,000 a month.

If you claim benefits at age 62 instead, your benefit will decrease by approximately 30% to $700. That’s $3,600 a year you’d miss out on. Multiply that by five years (when you’d reach full retirement age), and that’s approximately $18,000—per spouse! Alternatively, if you wait until age 70, your monthly benefit would ring in at approximately $1,266. As you can see, you leave a lot of money on the table by claiming Social Security benefits too early.

Click here to read more about how to maximize your Social Security benefits.

In sum: what you need to know about common retirement mistakes

Planning for retirement is often complicated and overwhelming. There are so many considerations to keep in mind, and this post is just a start.

The good news, however, is that you need not face these challenges alone. A qualified financial advisor can help you navigate the retirement-planning process so you can enjoy your golden years in the absence of any financial regrets.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.