How to Avoid One of the Biggest Retirement Mistakes

Written by Danielle Kunkle

There are thousands of baby boomers nearing retirement every day. According to Investopedia, about 75% of these baby boomers admit to being behind on saving for retirement. The other 25% may soon come to realize that they aren’t as prepared as they thought they were.

They may come to this realization because most baby boomers are unaware of the fact that Medicare, although paid for during your working years, isn’t free.

Most new Medicare enrollees are surprised to find out that everything they have been paying towards Medicare was only for one part of Medicare, Part A. Once they calculate their potential costs for all the other parts of Medicare, they conclude that their savings aren’t as adequate as they thought.

So how do you avoid the biggest retirement mistake you could make? Simple, you need to plan. Follow the steps below.

Discuss Things Beyond Money with Your Financial Advisor

Now that you know that Medicare isn’t free, you need to discuss the costs of your healthcare in retirement with your financial planner.

Not only that, but you need to discuss with them how often you go to the doctor, what kind of lab work and tests you get on an annual basis, and anything else that might cause a divot in your savings. This may seem like too personal of a subject to discuss with a financial planner, but it’s necessary.

According to Fidelity, on average, a couple will need $280,000+ in retirement savings just for healthcare costs. Discussing your health status can help you and your financial advisor plan for potential expenses such as needing a Medicare Supplement plan or long-term care coverage.

Be Ready for the Unexpected

Never assume that your health will be in tip-top shape for the rest of your life. Yes, you may be healthy now, but that could literally change within a day. Similar to an emergency fund, set aside money in the chance that you become chronically ill.

Suppose you get diagnosed with cancer. Chemotherapy alone costs tens of thousands of dollars in one calendar year, not to mention the surgeries you’d need.

You’ll want to be prepared for an unexpected diagnosis just like this one. If you become ill, the last thing you will want to worry about is how you will be able to afford to fight for your life. Put the right coverage in place to protect yourself.

Plan for Possible Loss of Employment

We’d like to think that our place of work will always have a spot for us when we get into retirement age. However, ageism in the workplace is no myth. Sometimes, employers see the new, younger applicant walking in as the best person to take over a job you’ve been doing for years.

With more baby boomers planning to continue active work past the age of 65, the possibility of having your position taken away from you grows. Therefore, you should never bank on always having that biweekly check flowing into your account.

Have money set aside to replace your income if you were to lose it suddenly.

Set Up an HSA

An HSA is a health savings account. Having this account allows you to be able to put away money without having taxes being taken out of it. The purpose of this account is to help pay for qualified medical expenses.

As of 2019, the maximum contribution amount for an individual is $3,500, while the maximum contribution amount for families is $7,000. Those who have an HSA and are at least 55 years old is allowed to contribute up to $1,000 extra each year.

Qualified medical expenses you can use your HSA to pay for include but are certainly not limited to, hospital services, long-term care, dental and vision services, and even insurance premiums. You can also use your HSA to cover your immediate family member’s qualified medical expenses.

How to Set Up an HSA

To be eligible for an HSA, you must be enrolled in a qualified high-deductible insurance plan. Once you have that setup, you will be able to set up your HSA either through your employer or a bank.

Next best step is to have money be auto drafted from your checking account to your HSA. This will help you make sure you always have a steady flow of money going into your savings account.

Health Savings Accounts with Medicare

Having Medicare while contributing to your HSA is not allowed. If you enroll in any part of Medicare, you will no longer be legally allowed to contribute to your HSA.

Therefore, to continue to be able to contribute to your HSA past 65, you must delay enrolling in Medicare. The only way you can do this without having to pay a late penalty later is to continue to have creditable coverage.

The most common form of creditable coverage past age 65 is a large employer group health plan. If you continue to work for an employer with 20 or more employees and keep their group plan, you can delay Medicare and continue to contribute to your HSA.

Start Now

The biggest retirement mistake is just failing to plan ahead. If you haven’t been putting enough into savings, start now. Try to start at least doubling the amount you save monthly to try and make up for lost time. The more you can put away now, the better your retirement will be in the long run.

Ingredients of a Happy Retirement

The retirement we ultimately decide to live is personal. Within the parameters of our individual financial situation and current health status, how we choose to live is up to us. We manage our days. We fill the calendar. We are in control.

Retirement affords the unique opportunity to become the person you want rather than the person you are supposed to be. The trick is to figure out who that is as soon as possible. As Zane Grey said, “we’re burning daylight.”

Everyone has advice to give. Friends generously share specifics of their retired life, perhaps bragging a bit, maybe complaining a tad. Books enumerate the good and bad pointing out pitfalls and pinnacles you are likely to encounter. Retirement bloggers share their journey as they learn to navigate their individual retirement jungle. Each source sheds some light on what it means to live retired 24 hours a day seven days a week. Yet none of these sample cases is necessarily how YOU will live your retirement. Your path to retirement is yours to blaze.

When it comes to the manufacturing the perfect retirement I don’t believe there is a generic one-size-fits-all recipe. We are different people. Our interests are all over the map. What excites you may bore the pants off me and visa versa. Each of us is responsible to find our respective way. How we get there is not always easy to predict. Plan on taking some missteps along the way but keep going.

And who wants a “perfect retirement” anyway? Perfect anything requires an attention to detail that has no place in the free flying life we can experience as retirees. It sounds like unnecessary stress if you ask me. I prefer to view retirement as a work-in-progress, a continually changing experience where we weed out what we don’t enjoy and add in what we love. What works one day may not another – that’s perfectly fine. It should be about making the most of each day. And the awesome reality of retirement is you get to decide exactly what that “most” consists of.

Retirement is an evolution. The person we are five years down the line is not the same person we were at the beginning. We learn, adapt, try a little of this, experiment with a little of that, and slowly learn how to make the most of our second act. That intensity and drive that was part of the working me has morphed into a more mellow go-with-the-flow retired me. I think my wife appreciates the change. I know my heart doctor does!

I write this blog from a little two-seater rocking chair, looking out my front door at my recently pruned roses whose healthy shiny leaves are beginning to return for a new season. A wind chime softly tones while a single bird twitters in the tree perhaps chiding the barking dog down the way. After weeks of rain – a rare occurrence in the Valley – the sun is out, the temperature is warm, and the sky is blue. Does it get any better?

Earlier today my wife and I went to Trader Joes – we love that place. We wander the isles finding intriguing new offerings along with our basics like fruit, veggies, bread, nuts, etc. My latest discovery is the Herb Popcorn – talk about addicting. From there I drove a few miles down the road to take a 90 minute walk along the shoreline. The California coast is definitely my sweet spot. Combine one part majestic coastlines strewn with craggy rocks, add a dose of booming waves breaking mercilessly on said rocks, throw in a pinch of riotously blooming cacti, and last but not least include the possibility of spotting a breeching whale lingering on horizon – that is my recipe for inspiration. When at the ocean it feels life just makes sense. One of my favorite quotes: ”the voice of the sea speaks to the soul.”

I think living a happy retirement comes down to figuring out what you most enjoy and then doing it. Sure there are days when you don’t feel 100 percent – that is part of the program. But when you do feel good make the most of it. Don’t worry about what you used to be able to do – do what you can. Be forever curious – the world is amazing in so many unique ways. Take a chance and venture outside your comfort zone. Remember you are not obligated to do anything. If a new direction turns out not to be what you expected, abandon ship! Move on to the next adventure, the next hobby, the next challenge, and the next reason for living.

Living a happy retirement life is something we all hope to experience. Good luck on your journey.

How Do People Around The World Plan For Retirement?

Written by Sally Perkins

Globally, most governments provide for some form of social security and retirement income. But as human lifespans are increasing by approximately three years every generation, there is a global trend of governments pushing back the age at which retirees can claim social security benefits. With government retirement schemes struggling to accommodate a growing population of retirees who are living longer than ever, the burden of saving for a comfortable and fulfilling retirement is increasingly being passed on to the individual.

The rule of thumb for financial planning is to assume you’ll need about 70 percent of your pre-retirement earnings to maintain your standard of living into retirement. In the United States, Social Security benefits will cover about 40 percent of your income, but unless you can count on some kind of windfall before your mid sixties, that leaves a 30 percent gap that either needs to be funded by a retirement savings account or a drastic lifestyle change.

As you think about your own retirement plans, you might take inspiration from how other workers around the globe prepare themselves for their retirement, financially and otherwise.

Going Dutch

The Netherlands regularly ranks among the best pension systems in the world with benefits from the 3-pillar pension system amounting to about 70 percent of pre-retirement income. There’s many factors that explain why this system is so healthy, but a key piece is that pension funds are compulsory, much like paying into Social Security in the US, only in the Netherlands it generally provides enough to live on comfortably during retirement. But for younger workers who make a good income and want to invest their money more aggressively, this system can make them feel handcuffed as their earnings have to go into the same investment pool with the earnings of older workers for whom risky investments wouldn’t be prudent. And as the lifespan of its population is growing, starting in 2022 the age of retirement will be linked to life expectancy and Dutch workers may need to wait even longer to access their pensions.

An Aging Southeast Asia

Compulsory retirement at a certain age for private sector employees has generally been deemed discriminatory in most nations, but is still in effect in Singapore where, under the Retirement Age Act, employers can mandate retirement starting at age 62, the minimum retirement age nationally. Thailand has a population that is aging faster relative to other Southeast Asian nations, and in spite of statutory severance pay for workers age 60 and over, most Thais have no post-retirement income plan. In Malaysia, workers must fund an Employee’s Provident Fund (EPF), but as with US Social Security, it’s rarely enough to provide a livable income post-retirement and workers are encouraged to find strategies to save for retirement.

UK Workers Push Past Retirement Age

More than 1.4 million over-65s in the UK continue to work at least part time, either because they need to make ends meet or simply because they want to. There’s a certain stigma around retirement, that it’s the end of something rather than the start of an exciting new chapter, which has contributed to many working past retirement age for fear that they will feel useless or lose their edge without work. There’s also less incentive to retire in the UK since workers can continue to work beyond the State Pension age and still receive their State Pension. But according to the Office for National Statistics, health and wellbeing often increase while depression and anxiety fall once workers are no longer burning the candle at both ends. The tradeoff may be well worth it.

Swedish Death Cleaning

One of today’s trending retirement routines comes from Sweden where the act of “death cleaning” helps people prepare for the last act of their life. Honestly less morbid than it sounds, Swedish Death Cleaning is about enjoying the process of going through and paring down your possessions to be able to focus on the really important things. It’s also an act of respect for your loved ones who ultimately end up responsible for your things when you eventually pass away. People in Sweden – and worldwide – have found that downsizing earlier in retirement not only simplifies one’s day to day life, it lifts a psychic weight that makes retirement more carefree. Downsizing – a Global Trend?

Minimalism isn’t unique to Scandinavia, though they seem to have perfected it. Worldwide retirees are finding that by shedding worldly possessions or attachment to a place, they are prepared to travel in retirement or settle in another country where their retirement savings can stretch much further.

While the specifics of retirement schemes may vary from one country to the next, it’s fairly universal that people all over the world must plan ahead to be able to have financial freedom in retirement. Whether that’s saving money on top of pensions or preparing to live a more streamlined and affordable life, foresight is the key.