Dreams of traveling to exotic locations and spending on items such as a cabin or boat sound great, but each of these desires carries a very real price tag. Everything you want to do in retirement must be planned for well in advance.
Here are five behaviors to avoid if you want to retire smart and with enough savings to achieve all of those dreams.
A timeshare is an expensive choice. Most people do not use their timeshares as often as they think they will, and it is often not as convenient as originally believed. There is usually an up-front cost plus an annual maintenance fee that can even reach $3,000 in some cases.
While you can sometimes sell an unused timeshare on the resale market, it is a better idea to avoid the purchase altogether.
Borrowing from your 401k reduces retirement savings and can change your retirement timeline. The potential costs of such actions can actually be evaluated and predicted. For example, a 40-year-old employee who is planning to retire at age 65 and is on target, but then borrows 30 percent of the money in their 401k would potentially reduce their available retirement income by 15 percent, delaying retirement by five years, according to a Mass Mutual analysis. Your retirement account should only be accessed in a true emergency.
The Federal Reserve Board completed a study that indicated 40 percent of United States households do not have enough to cover an unexpected expense of $400 or more. People instead turn to credit cards or 401k loans, both of which are costly choices. Investing in a savings account each month ensures that you can address unexpected events and helps to avoid additional costs in the form of interest or penalties.
Many people believe Medicare will come to the rescue in the event of a turn for the worse, but this form of insurance actually has significant deductibles and co-payments.
Also, Medicare does not even cover many health services that employer-based plans typically cover. Health conditions can arise out of nowhere and if you aren’t adequately prepared, it could cost you considerably.
Social Security can be a wild card. It is not known how much you will receive, if anything, by the time you’re of age. You should plan for any Social Security benefits to be the icing on your retirement cake. Assume that you won’t receive that income, and if you do, you’ll be way ahead. No one knows exactly how long they will live, but if you do reach the age where Social Security benefits are possible, defer your benefits until full retirement age to maximize your benefits.
Finally, assuming you’ll be able to work until you decide not to is risky. There may be a life event that prevents you from working unexpectedly. You must have a plan in place for your retirement to cover unexpected events and to ensure that you spend your years however you choose.
If you have questions about your retirement plan or are in need of one, schedule an appointment on our online calendar by selecting the date and time that is most convenient for you! You can also always reach us at firstname.lastname@example.org.
Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.