Biggest Retirement Mistakes to Avoid for a Happy Florida Retirement

People work hard their whole life looking forward to retirement dreams. However, there are several common critical mistakes that if not taken into consideration can mean the difference between a happy and secure retirement or one of stress and worry.

Not Saving Enough Early Enough

Probably the most common mistake is not starting early enough saving in a separate prioritized retirement account to fully benefit from the power of compound interest over time. Even if you can only save a little bit at first, start a tax free IRA as early as possible.

Make the most of matching contributions from your employer’s 401(k) plan if you have one. These matching contributions are basically free money, but many workers don’t take advantage of this relatively easy way to build retirement savings.

Try to save 15% of your income you would like to have when you retire. By far the number one reason most people don’t make their retirement goals is not having a plan and saving enough.

Underestimating How Much You’ll Need in Retirement

Make a plan calculating how much you think you will need for retirement, and how much you need to be saving each year to reach that goal. There are many online calculators that make this easy for you.

Without a clear estimate of what you think you will need it’s easy to assume certain costs will be going down after retirement, when in fact health care costs and inflation will be going up that can quickly drain your retirement savings. Set as a goal of planning to replace 70-90% of your preretirement income levels adjusting for inflation.

A Certified Financial Planner in Florida can help you understand the intricacies of complicated subjects such as health care costs, tax strategies and set realistic projections that will make your money go the furthest in retirement.

Underestimating the Costs of Health Costs and Medical Care

While many people dream of retirement as a time for travel and exploring new things, managing health care issues tends to dominate senior’s later years. Healthcare costs are often the most expensive and underestimated cost in retirement.

People are living longer and medical costs continue to keep going steadily higher making long term care planning an even more essential part of your estate plan than ever.

According to the U.S. Government’s Administration for Community Living, a 65-year-old today has roughly a 70% chance of needing some type of long-term care in their life. Long term care medical costs are expensive and can easily potentially have as great or greater an impact on your net worth in your retirement savings as a stock market downturn.

Plan for healthcare in retirement separately from other expenses and plan for inflation and ever increasing healthcare costs. Fortunately, Florida is so geared to seniors and retirees it offers many special advantages with these types of health care options at a lower cost than most states.

Claiming Social Security Too Early and / or Relying on it Too Much

Although you can claim Social Security benefits at 62, that may not be the best idea to claim it at that age because you will receive 30% less each month for the rest of your life than if you waited four more years to “Full retirement age” at 66 or 67.

Postponing retirement until 70 years old will enable you to receive your maximum retirement benefits. Your benefits can increase by about 8% each year you delay after full retirement age, or about 32% more if you wait until 70. Not only that, but should the spouse with the higher social security benefit pass away first, the surviving spouse’s benefit steps up to that of the now deceased spouse leaving them with a higher monthly income.

Social security was never intended to be a person’s sole source of income. It should be viewed as supplementing your retirement savings along with other income streams such as investments, pensions or part time work. The Internet has made it possible for seniors to overcome age discrimination like never before for those who can work online finding part time work with flexible hours.

The future of Social Security at this time is not clear.  The latest estimates by the Social Security Administration itself of when the fund will become insolvent is 2034-2035, and will only be able to pay 75% of benefits to retirees at that time.

It will require an act of Congress to address the deficit and either continue to trim benefits or increase Social Security payroll taxes. This will become a political issue between younger generations and retirees regarding who will pay for the increases that is impossible to predict.

This is another major consideration why Social Security will become less reliable in the future to count on and should be viewed as only one element of your retirement income.

Failing to Make More Conservative Investments with Age

When you were younger you could afford to take more aggressive investment approaches because you had more years to recover from the inevitable market downturns. However, both as you approach retirement age and after retirement you simply do not have the time to recover from investment risks and need to make more conservative investment choices.

In keeping with the goal of safety, the money you will need for the next five years ideally should not be exposed to the stock market at all. You can afford to invest more aggressively with money you won’t need for ten or twenty years.

You want to divide your money into different segments in terms of the time frames when you will need it. Over time, shift money from the longer term more aggressive funds to non-market-based investments like T-bills and CDs as you get closer to actually needing that money to have time to recover from stock market downturns.

This is what the NextPhase™ Retirement Income for Life program does that creates a plan that with a high degree of certainty will provide income for the rest of your life, or your spouses or partner’s life that they will not outlive.

Over investing retirement savings in a single asset class such as your former company’s stock is another common mistake, especially as one grows older. Diversify across asset classes - stocks, bonds, real estate or other investments – and keep reallocating resources as you grow older.

Not Having an Effective Retirement Savings Withdrawal Strategy

You’ve worked hard and saved throughout your life. But how you make withdrawals from your tax free accounts such as IRAs or 401(k)s can have a huge impact on how much you will actually be left with after taxes.

This is where working with a Florida Certified Financial Planner who understands the tax laws can make a huge difference in your tax burden.  A tax efficient withdrawal strategy minimizes the chances of you being pushed into a higher tax bracket taking your Required Minimum Distributions or RMDs.

Beginning at 73 years of age, you must take a minimum amount out of your retirement accounts each year. This is taxed as normal income. There are several RMD Calculators that will assess how much your RMD will be each year.

Why this requires planning is if your RMDs push you into a higher tax bracket, you could end up with higher tax bills on your regular income and owing more taxes on your Social Security benefits.

Failure to take your annual RMD can result in a penalty of 25% that can take a big bite out of your savings!

Being House Rich but Cash Poor

Many people spend their lives paying off their mortgage but ending up not having the income to be able to support their day to day living expenses in retirement.

Most people’s homes are their single biggest asset. With home values skyrocketing, people are reluctant to give up the home they’ve always had in an area where they know it will be difficult to find even scaled down housing to replace it.

If you don’t have enough income to support your life in your current home, a reverse mortgage is one option to tap into the equity of your home for liquidity to cover living expenses or long-term care costs if they are necessary. However, consult with your Certified Financial Planner™ and CPA before moving forward with this option.

Carrying Too Much Debt into Retirement

Make it a goal to enter retirement debt free. You want to have as much of your mortgage payments, credit card debt and car loans paid off as possible because these recurring expenses can put the most stress on your budget over time.

Not Consulting with a Financial Advisor

Any one of these mistakes can wipe out years of growth in your retirement account if not taken into consideration.  Financial professionals can help navigate the maze of complexities around retirement planning, tax regulations and changes, to make sure you have the best plan for the optimum outcome for your unique situation.

A Certified Financial Planner in Florida can help you review your plan on a regular basis and make sure you have the most up-to-date approach that matches how your needs and expenses change as you grow older. And make sure you are leaving as much of your wealth to heirs as possible.