For some, the thought of retirement causes worry and anxiety. Will I have enough income or savings to retire comfortably? When should I start and how should I save my money? These questions can be overwhelming, but you should never be too intimidated to start planning. Your estate planning attorney can help you make the appropriate choices, once you have determined your retirement goals. There are also five mistakes to avoid in retirement planning. If you can successfully sidestep these potential problems, you will be well on your way to establishing your retirement plan.
Having unreasonable retirement goals
Most people have no idea how much income they may need to maintain their current lifestyle during retirement. Others assume they will need much more than they really do, which makes their retirement goal nearly unattainable. In turn, that can make the entire retirement planning process discouraging. On the other hand, if the goal is too low, you may have financial difficulties later in life, which is more often the case.
Not considering the potential for higher health care costs
One of the most important, yet most disregarded issues in retirement planning is future health care costs. It is necessary to estimate how much health care costs will likely be when retirement comes, in order to accurately anticipate your income needs. According to one report, a 65-year-old couple retiring in 2015, will incur an average of $266,589 in healthcare costs alone during retirement. While many people assume that Medicare will cover their medical expenses during retirement that would be a dangerous assumption. Relying on Medicare or Medicaid to finance the majority of your retirement is not a safe choice.
Not considering a long-term care plan
The time and expense involved in caring for an aging parent can be quite substantial. The medical expenses alone have the potential to exhaust all of an individual’s savings. The likelihood that retirement age individuals will require health care is estimated to be at least 70%. It is important that you understand all of your long-term care options so that you can plan for those likely future expenses, as a part of your overall retirement planning.
Not having sufficient savings
The sooner you start saving for retirement the better the chance is that you will have sufficient financial resources for a comfortable retirement. Basically, the earlier you establish a savings account, the more compound interest you can earn. Consider this example: if the retirement goal is $1 million at age 65, a 25-year-old would need to set aside $345 per month for 20 years, with investments earning 8% per year over 40 years. On the other hand, a 45-year-old would need to save $1,698 per month for the next 20 years to reach the same goal.
Failing to update your retirement plan
It is very important to review and revise your retirement plan, at least every few years, in order to make adjustments for the changes in the market, income levels and expenses. Also, any significant life changes, such as the birth of another child, or a divorce, may also require changes to your retirement plan.
If you have questions regarding retirement planning, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.
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