7 expensive retirement mistakes to avoid – The Fool Motley

Here's a scary statistic: More than half of the retirees surveyed last year by Global Atlantic employees said they regret planning their retirement. Their main mistakes, they reported, were not paying back debts such as mortgages before retiring and not saving enough for retirement.

Here are some of the other mistakes made by many retirees – and then regrets. Learn from them so you do not find yourself in the same boat.

Error # 1: Assuming Social Security Will Suffice

If you think that social security will be enough to support you in retirement, think again. This was never intended to replace all of your work income and the average monthly retirement benefit was recently $ 1,470. That's about $ 17,640 a year. If your income is above average, you will reap more than that, but not much more. The overall maximum monthly benefit provided by Social Security for those retiring at retirement age has recently reached $ 2,861, or about $ 34,300 for the entire year.

To find out how much you can expect from Social Security based on your income, go to the Social Security Administration (SSA) website and create a my social security account. Once you know what to expect from Social Security, develop a plan to generate any additional income you will need.

Mistake # 2: Do not join Medicare on time

One of the worst mistakes you can make in the approaching retirement and retirement is to register late for Medicare. Why? Because your Part B premiums (which cover medical services, but not hospital services) can increase by 10% for each year you were eligible for Medicare and did not register. This increase will stay with you for the rest of your life. Yuck!

Here is the scoop: You are eligible for Medicare at age 65 and you can register at any time in the three months before your 65th birthday, during your birthday month or within three months. These seven months constitute your initial registration period.

Fortunately, there is a useful loophole that prevents many people from facing the penalty: if you already receive social security benefits by the time you reach the age of 65, you should automatically be enrolled in Medicare . (Do not assume that this will happen – take the time to check.) You could also avoid the late registration penalty and be able to skip the term if you are still working (with employer-provided health coverage) at 65 years old, or if you are a volunteer abroad.

Error # 3: Failure to take DMDs on time

This error may be even more expensive than the previous one: Do not take your required minimum distributions (RMD) in time.

Some retirement accounts, such as traditional IRAs and 401 (k) s, carry RMDs, waiting for you to withdraw certain amounts each year. The deadline to receive your distribution each year is December 30, except for the year in which you reach the age of 70 and a half. For that year, you have until April 1 of the following year to take your RMD. (It may be best to take it before the end of December, whatever, however, otherwise you will be forced to have two distributions in one year.) It's a good idea, if possible, to set your account for your RMD to be sent. to you automatically every year.

If you take your RMD late, the penalty will increase to 50% of the amount you did not withdraw on time. If you had to withdraw $ 7,000, you are thinking of losing $ 3,500! (The IRS allows you to appeal a waiver.If you do not comply with the rule one year, review it.)

Error # 4: Ignoring Fixed Annuities

It can also be an expensive mistake not to look at fixed annuities. If you buy one or more, they can provide you with an almost guaranteed regular income, such as a pension, for the rest of your life. Here is the type of income that different people could get in the form of an immediate fixed annuity in the current economic context:

Data source: immediateannuities.com.

Instead of, or in addition to, fixed annuities, consider a deferred fixed annuity (sometimes called longevity insurance). Instead of starting to pay immediately, he starts paying at a later time, such as when you reach a certain age. For example, a 70-year-old man could spend $ 50,000 on an annuity that will earn him $ 858 a month until the end of his life, starting at age 80.

These two types of annuities can save you from worrying about not having enough money to live later.

Mistake # 5: Underestimating the cost of health care

Another big mistake is to ignore health costs when planning (and saving) your retirement. Here's why: A 65-year-old who is retiring today will spend an average of $ 285,000 on health care, according to Fidelity Investments. (This does not even include long-term care expenses.)

One of the ways to control health care costs is to be smart about Medicare, choose the plan that will serve you best and optimize all the program offers. For example, if you get applicable screening and preventive care, you can reduce your overall health costs by staying healthier.

Mistake # 6: Ignoring long-term care in your projects

An issue that is even more ignored than the cost of health care is that of long-term care. It's easy to assume you will not need it, but there is a good chance you will do it – and it's not cheap. The insurance that covers long-term care is not cheap either – but again, it's because care is expensive and you may need it. Consider:

• 52% of people who will reach the age of 65 will need some form of long-term care during their lifetime, according to the AARP.
• The average length of time people need long-term care is 1.5 years for men and 2.5 years for women by AARP. (But 14% will need it for more than five years.)
• 57.5% of people who will reach the age of 65 between 2015 and 2019 will spend less than US $ 25,000 on long-term care in their lifetime, while 15.2% will spend more than US $ 250,000, according to the National Association of Insurance Commissioners.
• The approximate cost of lifetime care for a person with dementia in 2018 was $ 350,174, according to the Alzheimer's Association.
• The median annual cost for an assisted living center and a semi-private room in a nursing home in 2017 was $ 45,000 and $ 85,775, respectively, according to a Genworth Financial survey.

High net worth individuals could simply pay for long-term care out of pocket, easily, and people with low incomes may simply not be able to afford long-term care insurance. But if you're in between, it makes sense to at least buy long-term care insurance. It will be a lot cheaper if you buy it when you are still in your fifties as opposed to your in the 70s.

Error # 7: Not having a withdrawal strategy

Here is one last mistake many people make: do not have a plan to pull their nest egg over time. If you withdraw too much and too early, you may run out of money too early. And if you withdraw funds too slowly, you may not enjoy your retirement as much as you can. You must have a safe withdrawal rate in your plan.

An empirical rule – the 4% rule – has some flaws, but it remains a practical way to start thinking about the issue of withdrawal. This suggests that if you withdraw 4% of your nest egg during your first year of retirement and then adjust for inflation in subsequent years, your money should last 30 years. There are ways to better adapt to your needs, for example by withdrawing more or less than 4% per year or basing the withdrawal of each year on market developments.

Do not forget to consider and plan the possibility that you live a life very According to the Social Security Administration, "about one in three 65-year-olds will live past the age of 90, and one in seven will live past the age of 95". If you retire at age 62, as many people do, and live for about 95 years, you are thinking about 33 years of retirement. Between social security, your savings and any other income, you may need to support yourself for a very long time in retirement.

Learn about retirement and how to plan as efficiently as possible. The more you know, the more financially secure your future will be.