FILE - This April 2017, file photo provided by NerdWallet shows Liz Weston, a columnist for personal finance website NerdWallet.com. (NerdWallet via AP, File)
One of the biggest retirement mistakes you can make is not realizing what you don’t know.
I regularly hear from people in or near retirement who misunderstand how Social Security works, dramatically underestimate life expectancies or fail to plan for big expenses.
These aren’t folks looking for advice. They’ve already made up their minds and want to argue about financial planning precepts, such as when to take Social Security or how much retirement is likely to cost. But what they think they know just isn’t so.
The reality is that most people don’t get good, objective financial advice before they retire, says actuary Steve Vernon, consulting research scholar at the Stanford Center on Longevity. Many people simply wing it, figuring that if they have a Social Security check and a little savings, somehow everything will work out. Talking with a professional — ideally a fee-only financial planner — could save you from a costly mistake, including any of the following.
1. THINKING YOU’LL DIE YOUNG (OR AT LEAST EARLY)
If you die early in retirement, your worries about paying for it are over. Live longer, though, and you easily could outlive your money. That stacks the deck in favor of waiting to start Social Security, since each year you put it off from age 62 to 70 increases your benefit by about 7 to 8 percent. That’s a guaranteed return on a stream of income that you can’t outlive or lose in a stock market downturn.
Plus, you may live longer than you think. The average U.S. life expectancy is just under 79, but that’s from birth. If you make it to 65, you can expect to live another 20 years or so. Half of all women currently in their mid-50s will live to 90, as will 1 in 3 men, according to the Society of Actuaries. People with healthy lifestyles and more education tend to live longer than average.
2. IGNORING YOUR SPOUSE
Speaking of Social Security: When one spouse dies, one of the couple’s two Social Security checks goes away. The survivor has to get by on the larger of the two checks. It’s important to maximize this survivor benefit by having the higher earner delay filing for Social Security as long as possible. .
3. CARRYING DEBT INTO RETIREMENT
If you’re wealthy, having debt may not be a big deal — you have plenty of income to make the payments, and your investments may be earning more than you’re paying in interest. Give yourself some options by planning to have debt paid off by retirement, but consult a financial planner before you tap retirement accounts to pay off any big debts, such as a mortgage.
4. FAILING TO PLAN FOR LONG-TERM CARE
If there’s anything people want to ponder less than death, it’s decrepitude. Yet someone turning 65 today has a 70 percent chance in the future of needing help with daily living tasks, such as bathing, eating or dressing. Family and friends will help some, but about half will incur costs for long-term care — and 15 percent will incur costs of $250,000 or more. Long-term care insurance may be one solution, or you may want to earmark certain investments or your home equity.
5. ASSUMING YOU CAN WORK LONGER
About half of retirees report leaving the workforce earlier than they had planned. Working longer can help you make up for not saving enough, but it’s not an option you can count on.
6. PUTTING OFF RETIREMENT TOO LONG
With all this gloom and doom, now I’m telling you to hurry up already? Sometimes, the grasshoppers get it right. Time, good health and energy are all finite resources. Spend a few hundred bucks of your hard-earned savings on a fee-only financial planner — and find out if it’s time to start living the future you’ve been saving for.
Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” lweston@nerdwallet.com; Twitter: @lizweston
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