Planning for retirement is challenging enough without making a big mistake. It takes a lot of money for most people if they want to maintain a retirement lifestyle like what they had while they were working. Here are three common assumptions many people make that are often incorrect and can be devastating to your retirement plans:
Thinking post-retirement expenses will be less.
A rule of thumb is often quoted in retirement circles: “Expect retirement expenses to be 20% less than pre-retirement expenses.” I have personally used this quote as a rule of thumb, but the warning is that it might not apply to you!
TO DO: Review your past 12-24 months of expenses and see what ongoing costs you feel will go away in retirement. Examples might include 401k or savings contributions. Maybe you plan to move to a smaller home with fewer expenses. Work up a post-retirement budget (and do not forget #2 and #3 below).
The government pays your medical insurance.
Medicare Part A is free (most of the time), so some folks get it in their head that Medicare is free. Part A covers hospitalizations. Parts B and D cover outpatient care and prescriptions, which require monthly premiums. In addition, often, you will face co-pays and deductibles.
TO DO: There are several strategies you can use depending on if you are generally healthy and rarely go to the doctor or visit often. If you are at retirement age, get with a specialist to help you navigate which strategy is best for you.
Assuming you will not need long-term care.
I have often said, “I do not worry about death; it is the dying that keeps me up at night!” When people’s health begins to deteriorate, most express a strong desire to remain at home and receive in-home care, which is generally not covered by Medicare. We have seen this many times among our clients, and the costs are surprisingly high.
TO DO: Get with an insurance agent or financial advisor specializing in long-term care insurance and decide if this is an option worth pursuing. The alternative is to self-fund, and there are several ways to do this beyond a traditional savings account, such as a reverse mortgage.
Remember, planning always improves results. The sooner you begin thinking about and planning for your retirement, the better off you will be. If you have questions, seek professional guidance from a Certified Financial Planner who can help you plan and manage your retirement strategy. This article was adapted from USA TODAY “Don’t be caught off guard by unexpected expenses: Here are 3 retirement assumptions that could leave you broke.” Maurie Beckman, The Motley Fool. December 19, 2020.
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Avoid These 3 Retirement Mistakes
Do not make these assumptions:
- Retirement Expenses will be less.
- Medicare is free.
- I will not need long-term care.
Stewart H. Welch, III, CFP, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget.
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