It’s extremely difficult, if not altogether impossible, to be completely prepared for retirement. No matter how much planning and preparation you do, something is bound to catch you off-guard. We typically spend nearly our entire adult lives in the workforce, so preparing for retirement can, in a sense, feel like preparing to live on another planet. In this article, I want to discuss the top five biggest retirement game-changers that many retirees get wrong.
1. Recognizing that retirement may not be a choice
When you prepare for retirement, you naturally assume you will be making the decision about when to retire. Factors outside of your control, like inflation and market returns, may impact when you retire, but the final decision about when to retire is always in your control, right? Unfortunately, a significant percentage of the population does not voluntarily retire. A study found that 57% of retirees do so by choice, 31% do so because of health issues (either themselves or a family member), and the remaining 12% are forced to retire due to job loss.
We generally don’t think health issues or disability will severely impact us until they do, the same with losing your job. Nobody plans to become disabled or lose their job and get forced into retirement, but that is the reality for nearly half of all retirees. As you get older and closer to retirement, you need to prepare for the possibility of an unintended early retirement. Ask yourself how you would handle health concerns for you or your spouse that required you to retire, or job loss that either forces you to retire or take a significant pay cut.
2. Taking Social Security too early
The conventional wisdom regarding Social Security is that it’s better to delay taking it as long as possible unless you have health concerns that lower your life expectancy or can’t retire without it. But the majority of retirees start taking Social Security as soon as they are eligible or immediately after retiring. Taking Social Security early means you will receive a reduced benefit for the rest of your life, and if you can delay, or at least wait until full retirement age, you will receive your full benefits (or more) for the rest of your life. Do everything within your power to wait until full retirement age to take Social Security or, if possible, delay benefits even longer to increase your monthly benefit amount.
3. Planning for a long retirement
Americans are living longer and longer. Between 1980 and 2010, the number of Americans aged 90+ tripled, and is expected to triple again by 2040. Retiring early has been thought to decrease life expectancy, but a review and meta-analysis found that to not be the case, which means if you retire early, you can expect to live just as long as your peers that worked until normal retirement age or beyond.
Living longer is a great thing, but you need to ensure that you are financially prepared for a long retirement. Plan as if you will live into your 90s or longer; if your retirement plan is contingent on you passing away at age 80, you might be in for some very lean years financially at the end of your life, and nobody wants that.
4. Adequately prepare for end-of-life decisions
Nobody really enjoys thinking about what happens when they die, but planning for the end of your life is a necessary component of retirement planning. How do you want to be cared for? Do you want to age in place (at home) or live in a care facility? If you are unable to make your own medical decisions, what would you like your care to look like and what quality of life would be acceptable to you? Consider informing those closest to you of your wishes and creating documents like an advance healthcare directive and/or medical power of attorney that puts your wishes in writing and can appoint someone to make your medical decisions if you are unable to do so.
Make sure estate planning documents are in-place so your assets are distributed according to your wishes and in a timely manner. Without the proper documents, your estate could become a mess for your loved ones to clean up after your passing.
5. Delaying important retirement goals
Once you retire, it may seem like you have all the time in the world. For perhaps the first time as an adult, you no longer have to work for a living. It can be easy to become complacent when your days don’t revolve around work. Why do you need to plan carefully for a vacation when you can go whenever you’d like? Retirement, unfortunately, can go by fast. Many retirees delay major retirement goals because there will always be time, until there isn’t.
Don’t take your good health for granted. It’s important to be careful with your spending and ensure you won’t run out of money in retirement, but consider allocating money to accomplish some of your big retirement goals earlier in retirement rather than later.
Retirement is difficult to prepare for, and it is impossible to plan your retirement with exact certainty, but by being prepared for the unexpected, you can increase your odds of a successful retirement. Recognize that when you retire may not be completely in your control, and prepare for what a forced early retirement could look like. Consider delaying Social Security benefits to at least full retirement age if you are able to do so, and prepare for the likelihood of a long retirement. Don’t let retirement pass by without preparing for what comes next, and start working on that retirement bucket list the first chance you get.
