4 Common Money Mistakes for Pre-Retirees

Nearing retirement, your thoughts start to drift farther and farther away from the job at hand and closer to what you’ll be able to do in all that free time - catch up on some reading, enjoy an afternoon on the back nine, or travel the world with your husband or wife. As you get closer and closer to your retirement party, it’s important to stop and assess you and your spouses’ readiness for retirement. 

Mistake #1: Neglecting To Create a Retirement Plan

With inflation high, interest rates approaching their highest in over two decades, and a possible looming recession, the confidence of pre-retirees has been declining. It's more important now than ever to properly prepare your finances for retirement. 

The first (and one of the biggest) money mistakes any pre-retiree can make is not heading into retirement with a plan. Understanding how much you really need to retire before you reach retirement can give you time to adjust your savings strategies, portfolio allocations, or insurance products. Additionally, it can help you and your spouse understand if your retirement expectations are going to be realistic or not.

Simply put, if you don’t understand how much you should have to retire comfortably, you won’t know if you’re on track.

Mistake #2: Waiting To Start Saving

Once you’ve created your retirement plan and discovered how much you and your spouse need for retirement, it may become clearer as to why you shouldn’t delay the savings process. While putting away a couple thousand now might feel hard to do, it’s important to remember that due to the principle of compound interest, a couple thousand dollars now could potentially turn into tens of thousands of dollars in retirement. Of course that depends on how the markets perform, what you invest in, and how many years away you are from retirement. The best way to make this happen, though? Time. Give your money the years (or decades) it needs to collect interest and grow into what you’ll need in retirement.

Mistake #3: Underestimating Healthcare Long-Term Care Costs

One the largest expenses for retirees is healthcare and medical costs. Those expenses can certainly eat into your retirement savings, especially if an unexpected injury or illness occurs. One way to help with the costs of healthcare is to understand your Medicare coverage and supplemental plan options.

It's also important to sign up for Medicare on time. For every full 12-month period that you wait to sign up for Medicare upon becoming eligible, you face a 10% penalty that gets added on to the standard premium. This penalty on the premium will have to be paid every year that you choose to use Medicare going forward.

Mistake #4: Underutilizing Tax-Advantaged Accounts

Never underestimate the impact taxes can have on your income now and through retirement. Both traditional and Roth IRA and 401(k) options can provide tax-advantaged opportunities that can make a difference in your retirement savings. Traditional retirement accounts reduce the amount of taxable income for the year they are created. For example, if your income is $60,000 but you put $4,000 into a traditional IRA, your taxable income for the year drops to $56,000. Roth IRA contributions are still taxed as part of your income for the year they’re added into the account, but then they are withdrawn from the account tax-free during retirement.

Preparing for retirement can bring about a mix of emotions, including excitement to leave the workforce and anxiety about affording your ideal standard of living. Putting in the work now to help avoid common retirement pitfalls could mean creating more peace of mind as you and your spouse look forward to enjoying your years of freedom ahead.

To get started with your financial plan go ahead and...