If you’ve been building your nest egg for retirement, you’re well aware of how difficult it can be to save for the future. But keeping your money secure doesn’t end once you reach your retirement age. During your golden years, it’s more vital than ever to be careful about your finances.
After all, returning to work to supplement your income isn’t easy or attractive. And you don’t want to completely run out of money in your 70s and 80s, especially since nowadays, healthcare costs tend to rise pretty fast.
Retirement may bring with it some changes to your lifestyle, but it’s still important to maximize your financial security and avoid certain money mistakes. Knowing which choices to make now could help you reach financial freedom down the road.
Here are 9 frequent money mistakes to avoid before and during your golden years!
1. Claiming Social Security Too Early
Once you reach the age of 62, you’ll be able to claim your Social Security retirement benefits which are basically a monthly check. The benefit amount you’ll receive each month is determined by multiple factors, including the age when you claim your Social Security benefits. Here’s the thing: receiving those retirement benefits at the age of 62 may be a money mistake. You may be wondering why so.
Waiting until you reach full retirement age (FRA) instead may entitle you to additional benefits. Yes, this means you’ll end up getting more money. Keep in mind that your FRA — you can calculate it here — depends on your birth date. So, you can get your full Social Security benefits at your retirement age, but delay them until you’re 70, and you’ll get even more benefits.
It depends on your situation, but claiming Social Security when you shouldn’t do that can turn into a money mistake you’ll regret later. Don’t forget that those extra benefits may increase your monthly income, which can help you cover important retirement expenses.
2. Failing to Sign Up for Medicare
Medicare is the national health insurance program. It’s meant to give anyone aged 65 or older access to healthcare, though other categories of people may also benefit from it as well. Getting your Medicare insurance is a very important step you wouldn’t want to avoid when you prepare for your golden years. To put it another way, failing to enroll in Medicare is definitely a money mistake.
As a result, it’s important to be ready to sign up for Medicare when the enrollment period begins. There’s an initial enrollment period that lasts seven months and begins three months before you turn 65.
If you fail to sign up during the initial enrollment period and decide to sign up later, you may face a late enrollment penalty. The longer you wait to sign up, the greater the penalty. Not to mention that you may have to use your retirement funds to pay for your healthcare expenses.
Make sure you review the Medicare offerings when it’s time to make a decision, and don’t delay in doing so. It may be a money mistake you’ll regret later.
3. Not Planning for Extra Health Care Costs
Health-care costs tend to go up during retirement, so you must be financially prepared to handle these expenses. Qualifying for Medicare is definitely a huge advantage, but it may also be necessary for you to have some extra funds set aside for what your healthcare plan won’t cover. Yes, I’m talking about investing some money in a health savings account (HSA).
HSA funds can only be used for eligible medical expenses, making them an excellent choice for seniors. If you make a habit out of setting aside pre-tax money in an HSA, it will be easier for you to cover medical expenses later in life. Not having these additional funds when you need them the most sounds like a money mistake to us.
Keep in mind that you won’t have to pay any taxes on your HSA withdrawals as long as they are used for eligible medical costs.
4. Failing to Budget
If you don’t have a solid budget in place before entering your golden years, you may not have enough money to live the way you want. A sound budget may include having extra money to get a new car, travel, or to visit family. You may think that you have the funds you need to do all this stuff, but budgeting is the perfect tool you need to ensure your finances are in order.
Basically, budgeting is an act of setting money aside now so you can enjoy what it buys later. It may sound simple, but many people tend to forget about it, which is a money mistake they definitely regret in their golden years. For instance, if you want to travel at least once every three months during your golden years, how much money do you need to save right now? And how much money do you spend each month?
It’s simple to see hard figures if you track your spending. Unfortunately, failing to budget is a terrible money mistake that could lead to some serious financial burdens.
5. Underestimating Retirement Costs
This is a common money mistake among retirees. Creating a budget for your golden years goes hand-in-hand with estimating your retirement costs. Starting with a budget can definitely help you determine how much money you should include in your estimates.
If you underestimate how much money you will need in retirement, you may end up having less money than you anticipated and struggling to have the retirement lifestyle you want on the finances you have left.
To avoid this money mistake that may ruin your retirement, remember to ask yourself the right questions when you’re about to start your preparations. It’s also very important to be honest with yourself when answering those questions.
To get as close as you can to including everything in your retirement budget, try to remember every possible expense. When you believe you’re done estimating, consider adding more funds to account for the unexpected.
6. Failing to Take the Required Minimum Distributions on Time
Certain accounts can’t hold onto your retirement funds forever, so you’re required to take withdrawals from them. You typically have to start taking required minimum distributions (RMDs) from certain accounts by age 70½, though seniors who turned 70 on or after July 1, 2019, can delay taking withdrawals until the age of 72. RMDs are required for most retirement plans, including SIMPLE IRAs, SEP IRAs, 401(k) plans, and more.
If you forget to take RMDs, you may be subject to a penalty — which could be a 50% excise tax on the amount you should distribute. To avoid this money mistake, remember to start taking RMDs to prevent losing a part of your retirement funds.
7. Failing to Downsize
The house you still own may be the place your children grew up in, and your grandkids love to visit. But is it suitable for your retirement plans? Living in a big house when you have a family is understandable, but it may become unneeded once you enter your golden years.
Consider the location of your house, its size, and how much money you need for maintenance. Do you live in a state with high property taxes? Is it difficult to meet upkeep costs?
If the place you live is more like a financial burden for you than a home, maybe you should think about downsizing. Not doing so and using retirement funds to pay for the utilities and maintenance is definitely a money mistake that can wreck your nest egg.
8. Putting Off Estate Planning
You may think estate planning is too overwhelming because of the effort, time, and money it takes to do everything right. But let’s talk about what would happen if you didn’t create an estate plan. Your assets would most likely be up in the air if you were incapacitated or died. This money mistake could lead to financial ruin for your loved ones, including your children or partner.
To avoid having your estate handled by a probate court, it’s important to get your affairs in order long before you think it’s time for that. Also, as your situation changes, don’t forget to update any applicable documents. Having this plan can help you assign your assets as you wish and also reduce estate taxes.
9. Failing to Talk to Your Children About Your Retirement Plans
Failing to speak with your children about relevant retirement information (such as estate planning) may lead to unneeded consequences if you were to pass away. Although money and death aren’t exactly the topics you’d like to discuss with your children, it’s important to let your loved ones know what your plans are.
But let’s see why not having this conversation with your family could be a money mistake. If you get sick or die, your children may have to take on certain responsibilities, such as becoming a health care proxy or the executor of your will. It may be difficult to have this kind of conversation with them, but it will make everyone feel more prepared. Plus, it could help clarify what happens with your money and/or assets after you die.
These 8 habits will make you reach financial freedom and avoid money mistakes!
