This decade of life is the perfect time to get your retirement plans on solid ground.
While planning for your retirement is a lifelong process, retirement planning in your 60s is a crucial time to cement your planning and make sure you’re ready for this next step in your life. As you hit your 60s, it’s time for you to sit down and reflect on your financial reality; to take stock of what you have, what you’ll need in retirement, and what you must do to get there.
This can be a stressful step in your retirement planning and there are some common mistakes that people tend to make as they get closer to retirement. Below, we’ll discuss those mistakes so that you can avoid them in your own retirement planning.
Mistake #1: Not Enough Stock Holdings
It makes sense that the closer you get to retirement the less risk you want in your portfolio, but just because you’re getting older doesn’t necessarily mean that you should automatically sell the bulk of your stocks and replace them with less risky options, such as fixed-income assets. Too often, near-retirees completely reduce the equity exposure in their investment portfolios as they approach retirement, losing out on the growth that can offset inflation.
Even though the stock market can be volatile and nerve-wracking at times, Treasury yields are near historically low levels. This means that, if your portfolio is heavily weighted in Treasurys, then your money might not keep pace with inflation. Instead, consider creating mental buckets for your assets: very short-term, midterm, and long-term. When the markets go down, don’t touch the long-term investments.
Mistake #2: Spending Too Much
It’s always important to refrain from overspending, but never more so than when you’re very close to retirement. You’ll want to make sure that you’re maximizing your 401(k) and any other individual retirement accounts contributions while decreasing your debt and spending. Ideally, you don’t want to be paying off anything that has an interest rate of over 5%, so try to eliminate any such debt as quickly as possible.
Mistake #3: Ignoring Long-Term Care
Long-term care should be a critical part of your retirement planning. The national average monthly payment for a home health aide is $4,500, and the average monthly payment for a private room at a retirement home is $8,800. These are huge costs usually not covered by Medicare. Medicaid will help cover some costs, but the options for care are restricted and it will only become available to you once your funds are significantly diminished.
One option to help pay for your future care needs is long-term care insurance. Having insurance can be a lifesaver if you are diagnosed with an unexpected long-term illness like Parkinson’s or Alzheimer’s. There are several hybrid insurance options available, as well. These options offer a payout to the family in case of death if the long-term benefits were never used. It’s also worth mentioning, long-term care insurance is considered a valid medical expense for most HSAs.
None of us can be sure of what the future will bring, but we can be sure that our medical costs will increase as we age. Despite this, a little forethought and planning can allow you to enjoy a peaceful retirement free from these financial stressors.
Mistake #4: Not Understanding Your Taxes
If you have a qualified retirement plan such as a 401(k) or other traditional retirement accounts, you’ll have to take a Required Minimum Distribution (RMD) starting at age 72, and this income will be taxed. You should begin planning for this now, especially if you have the bulk of your savings in those plans. Chances are that taxes are only going to get higher, which could significantly impact your future retirement income.
A way to circumvent this taxation is to convert some of the money in your retirement savings accounts into a Roth IRA, where you’ll pay taxes in the moment, but not when you withdraw funds down the road.
SEE ALSO: Reduce Your Taxes in Retirement
Mistake #5: Not Having a Side Hustle
When it comes to thinking about retirement, perhaps our biggest fault is that we see it within a binary framework of either working or retired. The truth is that there is an in-between that’s bubbling with opportunities and options. There is a way to leave your 40-hour-a-week office grind without completely exiting the workforce and even options that could inspire your passions and interests. It’s possible to continue doing something you love or find something new to enjoy, that contributes to your financial well-being in important ways, too.
A study by Age Wave/Merrill Lynch found that working during retirement significantly contributes to improved mental stimulation, physical activity, and social connections – three main things proven to contribute to longer lifespans. This is because working keeps our minds engaged and, therefore, healthier overall, potentially helping you stave off diseases such as Alzheimer’s. While strenuous workouts contribute the most to our physical health, any kind of physical activity can help delay the onset of age-related muscle and bone concerns. Socially, maintaining regular connections has been shown to increase our immune systems, our self-esteem, and our empathy. So, if you’ve never considered working in some way in retirement, it may be time to give serious thought to this option.
Mistake #6: Forgoing a Financial First-Aid Kit
Any solid financial plan must include an emergency fund, and planning for retirement is no different. As you plan to retire, create a financial first-aid kit of sorts. It should include all of your important financial statements, such as tax documents and Social Security statements, estate documents like your will, and an emergency fund with at least three to six months of living expenses. You should also include documentation for your health, auto, and home insurance policies and a list of all phone numbers and passwords to your accounts.
When it comes to planning for a successful retirement, it’s important not to overlook these crucial parts of your financial strategy. No matter how far in the distance your retirement seems, the more well-thought-out your plans are and the more deliberate your savings strategies are, the more prepared you’ll be no matter what your retirement brings you. Your 60s are the perfect time to sit down and take stock of where you stand financially – and where you want to be – and then create a plan to make it happen.
At Andersen Wealth Management, helping you achieve your financial dreams is our primary goal. Contact us today to schedule a no-obligation discovery call and we can get started on building you a customized retirement plan that ensures your future financial security.