3 expensive retirement mistakes to avoid – Motley's crazy

Although retirement is an exciting time in life, it can also be stressful, especially from a financial point of view. Think about it: you suddenly spend a salary living with a fixed amount each month from social security and savings. It's a scary prospect. But by not making these major mistakes, you will avoid the financial worries that many older people face.

1. Do not follow a budget

Many people think that they can get away with not respecting a budget, during their working years or at retirement. But once you switch to a fixed income, it's all the more crucial to know where your money is going.

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If you are not used to staying on budget, change your music when you retire. Make a list of your recurring expenses, consider one-time expenses (such as annual dues or membership fees) and compare them to the monthly income you work with. Do not forget that the money you withdraw from your savings is not necessarily tax-free. Unless you store this money in a Roth account, you will lose some of your distributions to the IRS.

Now, if you find that your monthly income is enough to cover your current expenses, you are pretty fit. Nevertheless, your budget should contain some room for unplanned bills. If this is not the case, play with some of your expense categories. You can, for example, eat less often or take a cheaper car to free up some money. Whatever the case may be, make sure you understand exactly where your income is going in order to make the most of it and, just as importantly, make sure you do not spend too much.

2. To depend too much on social security

Many people assume that they do not need much savings for their retirement because social security will cover the bulk of their living expenses. In reality, social security will only replace about 40% of the average employee's pre-retirement income. However, most people need about double to live comfortably in retirement. Therefore, if you do not have a lot in your IRA or 401 (k), consider postponing your retirement and extending your career until you get a better cushion.

Incidentally, working longer could also increase your social security benefits, thus increasing this flow of income. For each year of deferral of benefits beyond your retirement age (which, depending on your date of birth, reaches 66, 67 or somewhere in between), you will get an automatic increase of 8% per year, up to 39 to 70 years old. this increase will remain in effect for the rest of your life.

3. Do not buy long term care insurance

Many people think that they do not need long term care insurance or that they can not afford it, but unfortunately, 70% of seniors seniors age 65 and over will eventually need long-term care in their lifetime. And this care will not be cheap. In the United States average accommodation costs an average of $ 45,000 per year, while the average home costs $ 85,775 per year for a shared room and $ 97,455 per year for a private room. And that's a lot of money later in life, when your income is relatively fixed.

That's why it's wise to take out long term care insurance before you find yourself in a situation that could permanently upset your finances. Although premiums are not cheap, if you purchase insurance from age 50, when you are relatively young, you have a better chance of getting a health-based discount that will make paying for your policy easier to manage.

The more judiciously you plan and manage your expenses during retirement, the less stress you will be under. Avoid these mistakes and you will be on the path to a fulfilling and carefree retirement.