One of the primary reasons that people engage a financial planner in Melbourne is to know if, and when, they can retire. Just the thought of retirement can cause anxiety and many feel overwhelmed and unprepared.
In fact, one of the biggest dilemmas for those approaching retirement is balancing the life they want to live today with the life they want to live in retirement.
There are some common, yet avoidable mistakes that prevent many people from retiring ‘on time’. But with some planning, you can steer clear of the mistakes that could derail your retirement.
Retirement Planning Mistake #1: Living Too Large
The first question I ask clients when discussing their retirement plan is, ‘how much income do you need to maintain your current lifestyle in retirement?’ Not surprisingly, for the vast majority the answer is, “I don’t know,” or they’ve made an inaccurate assumption. If the assumption is too high, the goal of retirement may seem absolutely unattainable, and the entire planning process is discouraging. If the assumption is too low, which is most often the case, the retiree could run into a difficult financial situation later in life and have to make drastic, unwanted changes.
The general rule of thumb is to figure that you will need approximately 80% of your current annual income in retirement. I have to say that I’m not a fan of this generality. However, most people underestimate how much money they will need in retirement.
Keep in mind that retirees spend more on travel, entertainment and eating out especially earlier on in retirement when they have the time and good health to enjoy those activities. In their later years, health care cost can escalate.
Retirement Planning Mistake #2: Disregarding Higher Health Care Costs
One of the most overlooked areas of retirement planning is estimating what health care costs could be in retirement, and including this in the calculation of income needs. Fidelity estimated that a 65-year-old married couple that retired in 2012 will incur an average of $240,000 in healthcare costs alone in retirement. By overlooking this large potential outlay, retirees could feel strapped for cash in their most vulnerable years.
Often, people assume Healthcare will cover these expenses in retirement but this simply is not true. Healthcare costs to retirees are rising each year so it’s important to know what to expect. Contact David Pero Financial Planner Melbourne today to more about the costs, coverage and other pertinent details.
Retirement Planning Mistake #3: No Long-Term Care Plan
Anyone who has cared for an aging parent knows first-hand the toll it can take on their loved ones and their savings. Both the time and money needed to provide quality care can be staggering.
According to statistical studies, 70% of people over 65 will require care at some point in their lives. Given that 50% of claims last more than one year and medical costs are projected to continue rising faster than inflation, these costs adds up quickly. It’s important to know your long-term care options and how you plan to pay for these future expenses if you need to.