4 Foolish Mistakes to Avoid Before Retirement
Many people work with financial advisors when planning for retirement in order to have a good handle on their assets. Other individuals prefer to manage their own finances, which can sometimes leave them with insufficient funds when they finally face retirement.
Take a look at the following pointers to ensure you are able to maintain a comfortable lifestyle during retirement and have enough assets to cover assorted expenses.
Spending too much
Maintain a budget of how much you spend on necessities such as food, mortgage or rent, entertainment, car, health expenses and travel while still employed. Decide which expenses, if any, you can reduce or cut back on completely in retirement so you can create a new, realistic budget. Most people will not retire with the same net cash flow they had when employed, so it’s important to be prepared for unforeseen expenses such as hospital bills (if you get sick) or home and auto repairs.
Withdrawing more than you should
Unless faced with an emergency, do not withdraw more from your savings than you budgeted. Tapping into your assets by withdrawing a fixed amount each year, even if your yield is higher than expected, will establish a steady cash flow over time without depleting your bank accounts.
An example of this strategy is implementing the “4% rule," which suggests retiree/s to withdraw four percent of their funds in the first year of retirement. According to Investopedia, it's a "rule of thumb which seeks to provide a steady stream of funds to the retiree, while also keeping an account balance that will allow funds to be withdrawn for a number of years. The 4% rate is considered to be a 'safe' rate, with the withdrawals consisting primarily of interest and dividends. The withdraw rate is kept constant, though it can be increased to keep pace with inflation."
Taking Social Security benefits early
Try not to tap into Social Security benefits prior to age 70, if possible. By delaying the initiation of benefits, your Social Security checks could be 20 percent higher.
Let's say a retiree began receiving benefits of $1,350 each at the age of 63. If he/she waited until age 70, the amount would rise to $1,620 per month, a difference of $270, or $3,240 a year!
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Not saving enough
It would also be wise to set aside some sort of emergency fund. Unexpected circumstances happen all of the time that are out of our control, some of which can be life-changing. For instance, your home may be hit by a natural disaster or you may have to end up taking an expensive trip somewhere.
You can never be sure what will happen therefore, it's crucial to set aside as much of a financial cushion as you can.
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