Retirement should be a time of rest, relaxation, and play. It should be about focusing on those pursuits that you wanted to do when you were younger, but you have yet to cross them off of your bucket list.
Failing to plan for a comfortable retirement can be a major stressor in the life of someone facing their golden years. Recreational hopes and dreams can quickly be squashed in the wake of news that you haven’t set up things to be nearly as prosperous as you’d hoped. Learning what to do, and what NOT to do, as you plan for this time in your life will be a key to being able to enjoy these years. Here are some things to avoid as you plan for this exciting time in your life:
Don’t Rely Solely On Social Security
You’ve been somewhat misled about Social Security — it was never meant to replace your original paycheck. Social Security will cover approximately 40% of your pre-retirement income, and unless you are intending to pare down your expenses in retirement, it’s best to put other things in place to make sure you can live comfortably.
Social Security funds are also subject to availability, so if market fluctuations affect the overall health of this national account pool, you will also be affected.
Don’t Assume Cost Of Living Will Be Cheaper.
If you think of your day to day living expenses like food, clothing, and utilities, likely, these expenses will not go away in retirement. You might even find that certain expenses, like health care and leisure entertainment, actually go up during this time. To plan for a comfortable retirement, you’ll need to take into account all of these potential expenses when you budget what your cost of living will be.
Don’t Neglect Catch-Up Contributions
Many people simply don’t prioritize adding to their retirement savings in their early years of contribution to the workforce — most of their income is spent on student loan payments, housing, and supporting their families.
Over 50, people can take advantage of a catch-up contribution option, where you can put additional money into an IRA or other retirement account. While a startlingly low percentage of people over 50 do take advantage of the catch-up option, it is strongly recommended that you look into this as an efficient way to expand and grow your retirement portfolio.
Don’t Forget Those Taxes
Initially, it may seem that benefits from Social Security and other avenues of income streaming have a pretty healthy influx of cash at your disposal. Stop and consider whether you have paid Uncle Sam his dues. Most retirement income is still taxable by law; up to 85% of Social Security income is still taxable! Interest and investment income are not immune to tax regulations either, even in retirement. Staying informed and making wise decisions with the counsel of trusted financial advisors will be a key to maximizing your profit while minimizing your tax liability.
An Ounce Of Prevention
You’ve heard the phrase, “An ounce of prevention is worth a pound of cure”. It is especially true when planning for retirement. Making smart decisions now and preparing for this time will ensure that your golden years are just that.