1. Underestimating Healthcare Costs

Health care is often one of the largest expenses in retirement, and it is usually underestimated how much one might need. While Medicare is a very great program, it does not cover all that is needed. Prescription drugs, dental care, vision, and long-term care-the expenses can easily add up. In fact, a majority of retirees face much unexpected high medical bills in later life.

How to Avoid It: Start by understanding your Medicare benefits and consider adding supplemental coverage. Also, look into long-term care insurance, which can help cover the costs of nursing homes or in-home care. Factor these expenses into your retirement budget to ensure you’re financially prepared for medical needs down the road.

2. Not Having a Clear Retirement Plan

The problem is that many of them have a general idea, but not a well-structured plan, which could get them into financial trouble. Most Baby Boomers spend much time thinking about what they will do after retiring, such as travel, hobbies, and spending time with family, but not really think about how much it will cost to make those dreams come true.

How to Avoid It: Set aside the time to develop a thoughtful retirement plan. Begin by calculating how much you’ll need each month to maintain your lifestyle. Be sure to include future expenses such as medical, taxes, and entertainment. With a clear picture of your budget, you can outline ways to fund it through Social Security, pensions, personal savings, or part-time work.

3. Relying Too Much on Social Security

Social Security is important to most retirees, but it simply isn’t enough to support your lifestyle. The average monthly Social Security benefit in 2023 is about $1,800, which, while helpful, is far from adequate for most people’s needs. Relying solely on Social Security is a recipe for financial stress.

How to Avoid It: Don’t rely on Social Security as your sole source of income. Instead, build a diversified portfolio of savings, such as 401(k)s, IRAs, or other investments. The earlier you start saving, the better. Also, remember that delaying your Social Security benefits past your full retirement age will increase your monthly payout, which can make a big difference over time.

4. Failing to Account for Inflation

Inflation is a sneaky problem; it erodes your purchasing power over time. If you’re not planning for inflation in your retirement budget, you could be in for a shock when the cost of goods and services rises faster than expected. A dollar today will likely be worth less in 10, 20, or 30 years.

How to Avoid It: Keep pace with inflation, targeting higher returns on investment than the inflation rate, such as growth-oriented portfolios. You can also structure your retirement income to increase over time, like through inflation-adjusted annuities. Keep track of inflation trends, and make it a point to review your budget every year to ensure you’re adjusting for rising costs.

5. Not Paying Off Debt Before Retirement

Debt can be an onerous burden in retirement. Many Baby Boomers are carrying mortgages, car loans, or credit card balances into retirement, and that can eat up a significant portion of your monthly income. The more debt you have, the less room you’ll have to spend on enjoying retirement.

How to Avoid It: The key is to retire with as little debt as possible. This involves paying off high-interest credit cards, loans, and even your mortgage. Refinance your mortgage now if you haven’t, and lower those monthly payments. The less debt you have going into retirement, the more you can spend on what is important to you.

6. Improper Withdrawal Strategy

You’ve worked hard to save for retirement, but how you withdraw your funds can make or break your retirement. Many retirees start pulling from their savings without a solid strategy, which can deplete their funds too quickly and lead to a shortage later on.

How to Avoid It: In retirement, you want a withdrawal that is sustainable. A general rule of thumb is called the “4% rule”-the idea that you should withdraw 4% a year from your savings in order for your money to last throughout your retirement. Of course, this is a rough guideline. Tailor your withdrawal rate to your lifestyle and expected expenses. Consider hiring an advisor to help you create a withdrawal plan that works for you.

7. Ignoring Taxes in Retirement

You might think that because you’re not earning a paycheck anymore, taxes won’t be much of an issue in retirement. However, taxes on your retirement income can be a significant surprise. Depending on your income sources, your withdrawals from retirement accounts (like 401(k)s or traditional IRAs) can be taxed as ordinary income.

How to Avoid It: Be proactive about how your retirement income is taxed. Work with a tax advisor to structure your withdrawals in the most tax-efficient manner possible. For example, you may want to consider taking withdrawals from taxable accounts before tapping tax-deferred retirement accounts to minimize your tax liability.

8. Not Having an Estate Plan

Estate planning often gets pushed to the back burner because it’s either too complicated or uncomfortable. However, without a plan, there could be some very unintended results, such as family disputes, costly probate proceedings, or your assets being distributed in a manner you didn’t intend.

How to Avoid It: Set up an estate plan, including a will, powers of attorney, and healthcare directives. Consider setting up a trust to avoid probate and ensure that your assets are distributed according to your wishes. Be certain your beneficiaries are up-to-date on your retirement accounts and insurance policies. Last but not least, make sure that your wishes are clearly documented and your loved ones know just how to carry out your plans when the time comes.

9. Retiring Too Early

While it’s tempting to retire as soon as you hit a certain age, retiring too early can leave you financially vulnerable, especially if you haven’t saved enough or accounted for potential healthcare costs. Plus, retiring early means fewer years to build up your savings.

How to Avoid It: If possible, delay retirement until you’ve built up a robust financial cushion. Consider working part-time or starting a side gig to maintain income while easing into full retirement. This gives you more time to save, lessens your reliance on Social Security, and allows you to continue enjoying your work-life benefits.

10. Failing to Reevaluate Your Plan Regularly

Retirement isn’t a set-it-and-forget-it process. Your life and financial situation will change, and your plan should adapt accordingly. Failing to reevaluate your retirement plan could mean missing out on opportunities or failing to adjust to unforeseen challenges.

How to Avoid It: Set aside time each year to review your retirement plan. Check on your budget, review your investments, and adjust your withdrawal strategy if needed. The regular check-ins with a financial advisor help you stay on track with changing priorities in life.

Conclusion

In conclusion, retirement can be the most rewarding chapter of your life, but it requires careful planning and foresight to avoid the common pitfalls many Baby Boomers face. By taking proactive steps, such as planning for healthcare, understanding taxes, eliminating debt, and having a solid withdrawal strategy, you can set yourself up for a comfortable, worry-free retirement. So, take the time now to avoid these mistakes and enjoy the retirement you’ve earned!

Lyle Boss, The REAL BOSS Financial, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West States. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.