How to Avoid Pre-Retirement Pitfalls
A lot goes into planning for retirement. You may have spent your working years scrimping and saving for retirement; however, you may not know that the closer you get to retiring age, the more likely you may be to make some severe financial mistakes that could impact your retirement.
Pre-retirement planning is perhaps the most crucial the closer you get to actual retirement. Retirement is about so much more than investing in a pension plan. We’ve listed some of the most common mistakes people make right before retirement; by avoiding these pitfalls, you can ensure that you will be fully ready for retirement.
Paying off your mortgage.
Alright; this one is confusing. It seems to make sense to enter into retirement debt-free and seems counter intuitive to enter into retirement with a mortgage debt. However, you may have an advantage to keeping your mortgage: low interest rates.
In many cases, you will pay less to keep your mortgage debt than you would earn by paying it off and keeping it invested. Additionally, by keeping the debt, you will be able to also keep the mortgage tax deduction. Depending on your financial situation, you may want to speak to a financial adviser to see how keeping your mortgage my benefit you financially.
Or just underestimating the importance of a life insurance policy to strong financial planning. Just because your children are grown and you are in a financially stable place, doesn’t mean you should neglect your policy.
One of the biggest downfalls you can make is not adding long term care insurance riders. The older you get, the more likely your health is to deteriorate and it can have dire financial consequences. Are you covered in case you need long term care, such as a nursing home or in-home care? These riders may be more expensive initially; however, they can protect you against having to pay out-of-pocket for any healthcare you may need in your later years.
Another mistake you can make in pre-retirement is to switch to whole life insurance
In your later years, whole life insurance may seem like a good idea, it’s actually a poor financial move. Ideally, you’ll already have a term life insurance policy and a smaller whole life insurance policy. Many life insurance companies put the pressure on aging individuals to switch to whole life, using the fear of age-related health issues as a main reason. If you’re considering switching your term life insurance policy to whole life, you may be better off sticking with term. Whole life insurance premiums are expensive, and the cash value of a whole life plan takes years to build.
As with any financial decision, you should talk to an expert before making a life insurance decision, as the difference in premiums can save you hundreds of dollars.
Slacking with your Social Security strategy.
Or neglecting to implement a strategy at all. The question of when to start social security is important for retirees. In many cases, the longer you wait to start Social Security, the better off you’ll be – unless you find yourself faced with poor health. If your case is the latter, you should claim your benefits early to supplement your retirement income.
Perhaps one of the biggest Social Security mistakes you can make is overestimating how many benefits social security can provide. It’s always better to assume that Social Security won’t provide you with a decent means with which to live. Instead, think of your Social Security plan as a supplement to your current retirement savings plan.
Ignoring your post-work life plan.
It’s easy to get so wrapped up in planning the funding for your retirement that you forget to plan what you’re going to do once you’ve actually retired. The truth is that sometimes retirement can get lonely and, well, disappointing. Many retirees under-estimate the necessity for filling their days; you may no longer be working 8 hours a day, but what will you be doing instead?
Now is the time to begin planning how you will fill your days once you’re retired. Volunteer opportunities, activities and hobbies are all good ways to occupy your time. Additionally, if there is something you’ve always wanted to do – say, travel – you want to make sure that you’re on track with your saving and adjusting your finances accordingly.
Not taking risks.
The natural inclination for those getting ready to enter retirement is to conserve their portfolio. You want to make sure your money is going to last you throughout your retirement, and you may think that you should begin shifting your portfolio to safer investments.
In fact, the opposite may be true. Think about it: retirement isn’t the end of your life. You could be alive for 20-30 years and you want your money to last. This is why risky investments may be a good idea. Inflation means you could see a bigger return on your investments than you would if you tried to secure your portfolio’s current value. As always, you should speak to your financial adviser before making any large investments decisions.