Blunders that Ruin Retirement Plans

You are aware that investing at a retirement fund is a great way of providing yourself of financial security.  And while you are contributing regularly to your IRA or 401K, you may accidentally make mistakes that are hard to reverse.  Take not of these missteps before you even take them.

Not having a retirement plan at all

According to a survey conducted by TD Ameritrade, one-third of American adults do not have any financial plan for retirement.  Of the remainder of those surveyed, 46 percent said they have a written retirement plan, and 20 percent claimed they have a plan in their head. 

Always remember to save a part of your take out pay for retirement, no matter what.  Also, you need to get help from a financial adviser or from your employer’s investment-advice program.

Underestimating life expectancy

Some people tend to think that they would die anyway upon retirement.  However, thanks to a more healthful lifestyle, breakthroughs in medicine, and healthcare reforms, retirees are able to live longer. 

From an average life expectancy of 69.6 years in 1955, Americans are expected to live up to 77.9 years in 2005, according to the National Center for Health Statistics.  This is why you still need to have a solid retirement plan because you want to enjoy the rest of your senior life without the worry of losing money.

Underestimating your retirement spending

It is a misconception that we spend less as we grow older.  Chances are, a couple retiring in their early- to mid-60s is going to spend almost as much in retirement as they did during their working career. 

Age has nothing to do at how we spend thing.  In fact, we may spend more upon retirement as we may want to do things we never get to do while we were employed, such as traveling abroad or go skydiving.

Failing to plan for unexpected extras

Some people are satisfied on their basic retirement plan, but what if something unexpected happens?  For instance, your children live at home to save on rent or care for their aging parents; or you discovered that your house becomes infested with termites.  To cope with such surprises, you need to have a little extra on your budget.

Overlooking rising healthcare costs

A 65-year old couple retiring this year-assuming that they do not have an employer-sponsored healthcare package-would need about $225,000 just for their medical needs once retirement sets in.  That cost is a rise of 5 percent from 2007, and a whopping 41 percent jump from that same health care plan in 2002. 

In contrast, fewer large-scale employers offer retiree health benefits.  Since it is still not clear whether the United States would ever have a universal health care that other developed countries enjoy, you need to anticipate the rising costs of medical care and save some more amount for retirement.

Ignoring inflation

If you are 65 today, an expense that currently costs US$100 will cost $180 by the time you are 80, assuming that inflation rate remains at 4 percent.  You have to plan your retirement, anticipating the cost of living in your latter years.

 

Posted by Ardent Editor on Oct 17 2008 in Financial Planning

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