The thought of retirement planning may be stressful, especially when it comes to making sure you have sufficient savings or income to have a comfortable retirement. Many clients are confused and concerned about when they should start saving and which method is the best for doing so. These are all reasonable concerns, but they should not be discouraged. With the help of your estate planning attorney, you can reach all of your retirement goals. But first, you need to be aware of these five common mistakes in retirement planning so you can avoid them.
Mistake No. 1 – Creating unreasonable goals for retirement
The truth is, most people don’t know exactly how much money they will need to retire comfortably, or even how to go about estimating that amount. It’s hard to determine what it will take to support your current lifestyle 20 or 30 years from now. For that reason, clients often either believe they need more money than they actually do, or they underestimate their future financial needs. Either way, if your plan is flawed your goals will either be inadequate or impossible to accomplish.
Mistake No. 2 – Failing to consider future increases in health care costs
A very important consideration that must be made in retirement planning is having sufficient resources to cover the cost of health care during retirement. Even if you are healthy now, it is likely that, as you age, your need for health care will increase to some degree. It would be a mistake in retirement planning to overlook the increased need for health care in the future. If you do not account for this in your plan, you could still have issues with financial security during retirement.
According to some estimates, a 65-year-old couple who retires now will incur nearly $300,000 solely in health care costs. If that is the case now, what will that number be in 20 or 30 years? Another huge mistake is to assume that Medicare or Medicaid will be enough to cover your medical costs during retirement. Instead, you need to remain proactive and plan ahead.
Mistake No. 3 – Overlooking the need for long-term care
In addition to basic health care costs, some seniors will require long-term care. That is a potential need that cannot be overlooked. According to some reports, almost 70% of people who have retired need some form of long-term health care. These medical costs could exhaust all of your savings for retirement if you don’t plan ahead. Therefore you must think about the possible need for this type of medical care and include those estimated expenses in your retirement plan.
Mistake No. 4 – Having insufficient savings for retirement
It goes without saying that the sooner you start saving for retirement, the more you will have saved once that time comes. That is why you need to start your retirement planning now, if you haven’t already. Otherwise, regardless of how good a plan you may have, you may not have sufficient financial resources to live out your retirement in comfort. The sooner you start making regular deposits to a savings account, the more compound interest you can accumulate. Consider this example, a 25-year-old with a retirement goal of $1 million by the time they reach age 65 needs to put aside approximately $345 per month for 40 years, if they have investments earning 8% per year. On the other hand, a 45-year-old would need to save $1,698 per month for the next 20 years in order to reach the same goal.
Mistake No. 5 – Failing to update your retirement plan when necessary
It is very important to periodically review your retirement plan so you can make necessary modifications. If there have been changes in the market that will affect your investments, you may need to make adjustments to your retirement plan as to those investments. Also, if there has been a change in your income or cost of living, that may also affect your overall plan. If you have a new baby or grandchild, or if you have gotten divorced or your spouse has passed away, those changes in your life may necessitate modifications to your retirement plan.
Retirement options available in Kentucky
The attorneys at Gersh Law Offices, P.S.C. are prepared to review your retirement plan with you, or to create one entirely, while explaining the advantages and disadvantages of all options available to you. Basic retirement planning services can include:
- Beneficiary designations
- Incorporating retirement goals into an estate plan
- Early withdrawal from retirement plans
- Pension plans
One important part of retirement planning also involves selecting the beneficiaries of your retirement while considering the potential tax consequences. Retirement planning and estate planning work best when they are done together.
Download our FREE estate planning worksheet! If you have questions regarding retirement planning, or any other estate planning matters, contact Gersh Law Offices, P.S.C. for a complementary consultation either online or by calling us at (502) 423-7023.