The prospect of finally retiring can be an exhilarating one, and saying goodbye to the daily grind can be immensely gratifying. But that's only if you do it right. Overlooking even just one key component of a well-rounded retirement plan can create a hole that's difficult to fill. Don't make any plans on quitting before considering these four common retirement regrets and blunders.
1. Failing to establish a health insurance plan: If you plan on retiring before age 65, there are a number of things to consider, as that's the age at which you become eligible for Medicare. If you plan on retiring more than a couple of years early, it’s worth looking into being added to your spouse’s company-sponsored health insurance plan (provided he or she isn’t retired as well). Other options include exploring self-insurance and whether you might be eligible to join a state insurance pool. And come next year, you’ll be able to buy health insurance from a state insurance exchange, and you could be eligible for a tax break on the cost if this coverage if your income is comparatively low or moderate.
You may also turn to your employer for short-term health care solutions. For example, even though it’s not as common as it once was, some companies do offer retiree health benefits to employees. What’s more, you should be able to retain the benefits of your employer’s group medical plan by using COBRA; however, you can usually only keep COBRA in play for 18 months. To avoid a health care nightmare, make sure you’ve determined how much time between your retirement and Medicare you need to cover, and put those plans in place now.
2. Overlooking required minimum distributions: If you have a traditional individual retirement account (IRA) or 401(k), then you also have an obligation to take required minimum distributions (RMDs) by age 70 ½. Check your account disclosures to verify when you’re required to take your first minimum withdrawal and how much that minimum is. Failing to take your RMDs on time or not withdrawing enough funds from the account will have serious punitive repercussions. In addition to paying income tax on the amount of money you should have taken, you could also be slapped with an additional 50-percent tax penalty. This is not an auspicious way to kick off retirement, so stay on top of your RMDs!
3. Leaving before becoming fully vested in your retirement plan: The time it takes to become fully vested in your company’s retirement plan, such as a 401(k) or if you’re lucky a pension, differs widely from employer to employer, so do a little research to find out precisely when you are fully vested. If you only have a few more months to go, it’s worth sticking it out until you’ve hit that magic date, or risk losing out on extra money. If you leave your job before you’re fully vested, you may not be able to exercise stock options, maintain all of the 401(k) contributions your employer may have made, or be eligible for payouts from a pension.
4. Overspending on retirement hobbies and travel: Odds are good that you’ve been dreaming of the day when you’ll be free to travel whenever you like and finally have the time to indulge in your hobbies and passions. Unfortunately, travel and hobbies can consume cash faster than you might anticipate, and having more free time may compel you to find ways to fill that time with things such as meals out, shopping trips, home improvement projects, or entertaining — activities that often include spending money. Your spending habits and needs will change when you retire, so begin planning a budget now that includes the little extras like travel, rounds of golf, buying items for your hobbies, gifts for spoiling the grandkids, etc.
Retirement should be an exciting time — after all you’ve worked your whole life to get there. So why risk slogging your way through common retirement challenges that can easily be avoided? Don’t take any chances with your retirement future. If you are considering retirement, be sure to book an appointment with your financial advisor to review your plan and to help ensure that you don’t fall victim to these four common retirement blunders.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
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