Baby boomers are in the home stretch, either heading for retirement or already there. But that doesn’t mean it’s time to relax. The beginning stages of retirement are critical, with many opportunities for costly mistakes. These six missteps are among the most common:
- Not saving for healthcare. Medicare covers many health-related costs, but retirees must still shell out for Medicare premiums, supplemental coverage, prescription drug coverage, and anything not covered by insurance, like dental work and hearing aids. A recent study1 found that a 65-year-old couple retiring in 2015 could expect to spend an estimated $245,000 on health care over the course of retirement. That’s up from $220,000 in 2014 and $190,000 in 2005—a 29 percent increase in 10 years. What’s more: that figure doesn’t include estimated expenses for costly long-term care, should it be needed.
- Falling for “low” income taxes. Some states, like Florida, are trying to lure retirees with the promise of no or low income tax. However, those states often have high sales and property taxes to make up for the loss of revenue, which can raise the cost of living and deplete retirement savings even faster. Boomers should do their homework before making a move.
- Retiring too early. The official retirement age is 65, but most boomers are opting out of the workforce earlier. According to research from Boston College2, the average retirement age is 64 for men and 62 for women. Yet, before they call it quits, boomers should sit down with a financial professional and review their savings first. Retiring early means you lose not only a steady paycheck, but also healthcare benefits, access to a 401(k), and a higher Social Security benefit down the road. You also tap your nest egg earlier. If it turns out you need to stay in the workforce longer, it’s better to know before you quit your job.
- Spending too much, too soon. Retirement is cause for celebration, but that doesn’t mean the budget should go out the window. For most retirees, a 3 to 4 percent withdrawal rate is a safe bet. Pulling out much more, especially early on, can cause shortfalls later in life.
- Supporting the kids. The financial crisis of 2008 was a setback for many adult children, and some wound up moving back home or getting support from their parents in other ways. While the economy has recovered, many boomers still find themselves providing financial help. A recent study3 found that nearly 8 million boomer households, which together control almost $4 trillion in assets, are financially supporting adult children. These households, the study found, are 25 percent more likely to suffer financial stress. Meanwhile, boomer households that aren’t supporting adult children are twice as likely to be fully retired.
- Being an optimist. It’s always nice to stay positive, but at this stage in life, boomers will also have to face some harder truths. Rising health care bills likely won’t go back down. Chances are good that declining home prices won’t increase in time for boomers to reap gains. To avoid retirement losses, baby boomers should plan ahead and take necessary steps to ward off worst-case scenario situations.
Boomers have spent the last several decades working and putting money aside for retirement. As those years wind down, a cautious, careful approach can ensure those savings last.
1 "Fidelity Couples Study Uncovers Disconnects." Fidelity Couples Study Uncovers Disconnects. Fidelity, 24 June 2015. Web.
2 Munnell, Alicia H. "The Average Retirement Age - An Update." THE AVERAGE RETIREMENT AGE – AN UPDATE(n.d.): n. pag. Boston College, Mar. 2015. Web.
3Baby Boomers Who’ve Cut Apron Strings for Adult Kids Twice as Likely to Be Retired Than Ones Who Haven’t(n.d.): n. pag. Hearts and Wallets, 12 Mar. 2015. Web.