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Retirement is a period of life that you will need to plan carefully. But the wrong moves could end up ruining your senior years and leaving you uncomfortable strapped for cash. Here are some ways you could sabotage your retirement without even realizing it.
1. Relying too much on social security
If you are an average worker, you can expect your Social Security benefits to replace approximately 40% of your pre-retirement income. But that’s probably not enough to live on. In fact, most seniors are advised to plan that they need 70% to 80% of their previous earnings to cover their expenses.
Of course, there is some leeway in that formula. If you plan on maintaining a very frugal lifestyle in retirement, you could get away with living on only 50% or 60% of your previous income. And on the flip side, if you are hoping to travel a lot in retirement and experience it, you may need to More over 80% of your previous salary. But either way, Social Security alone probably won’t cut it, so rather than assuming those benefits will pay off most of your bills as a senior, think about making sure they cover a portion of your retirement costs and save enough to pay. for the rest.
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2. Invest too conservatively
Between social security and withdrawals from your retirement savings, you may, for the most part, have a fixed income as a senior. The problem, however, is that inflation will make the overall cost of living higher and higher as you go. That’s why you need ample savings to make sure you are able to keep up with those changes, especially since Social Security has historically done a bad job of helping seniors maintain purchasing power as inflation raises the rate. his ugly head.
In fact, a mistake many people make is investing their retirement savings too carefully. While safer investments like bonds are appropriate in the years leading up to retirement, when you are younger, stocks are the way to go, because they allow for more substantial growth.
Imagine funding a retirement plan with $ 300 per month over a 40-year period. If you commit to bonds during this time, your savings could generate an average annual return of 4%, leaving you with a final balance of $ 342,000. That’s a big chunk of money, but if instead you go heavy on stocks and replace that 4% return with a 7% return, you’ll end up with $ 719,000 to your name, all other things being equal. And that extra $ 377,000 could be the difference between living comfortably through retirement or having to pinch pennies perpetually.
3. Underestimate health care costs
Many people assume that health care will be accessible once they sign up for Medicare. But you might be surprised at the number of hidden costs you will encounter once you sign up. In fact, some projections put total retirement health spending at a whopping $ 606,337 for the average 65-year-old couple today. Ouch.
To avoid a cash crunch across the board, set aside funds for future medical bills over the course of your savings. You can do this by filling your retirement plan or contributing to a health savings account if you are eligible (you will need to be enrolled in a high deductible health insurance plan to qualify).
Don’t get caught off guard
As you can see, some seemingly innocent mistakes could cause a world of financial stress once your senior years begin. So don’t let that happen. Instead, take a realistic view of social security, invest retirement savings appropriately, and research how much health care could cost. All of these moves will put you in a much better position to enjoy retirement than to struggle all the time.
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