In my role as a founding partner at Egan, Berger & Weiner, LLC, I have been giving retirement advice for well over 35 years.
During that time I have seen clients make literally hundreds of mistakes regarding their retirement planning.
I have made a point of learning from their mistakes — mainly because as a husband for more than four decades, I do not want to have to explain to my wife, Sharon, why we do not have the quality of life in retirement that she has been looking forward to.
If you would like to have a comfortable retirement, be sure to consider these 10 steps.
1. Save enough money! Yes, this should be obvious. And I am amazed that this very basic fact eludes so may people. Write this down: Save early and save often. I don’t care if it’s $5 a week. The sooner you start saving, and the more you can save, the better off you will be financially when you retire.
Why do so many people not heed this advice? Probably because there is always a reason to procrastinate and put off saving: You need a new car, your kids need new clothes, and you want to redecorate the house. Sure, go ahead and enjoy your earnings and your life. But that doesn’t mean that you can’t also save some money.
In fact, a large percentage of workers say they have virtually no money in savings and investments. According to the 2015 Retirement Confidence Survey, 57 percent of workers report that the total value of their household savings and investments (excluding the value of their primary home and defined benefit plans) is less than $25,000. This includes 28 percent who say they have less than $1,000 in savings, approximately 9 percent who report they have less than $50,000 in savings, and another 10 percent who have between $100,000 and $250,000. Only 14 percent say they have more than $250,000, which thank goodness is up from 11 percent in 2014.
2. Make sure you put the plan in writing. So many people do not write down their plan for retirement. As a result, it is harder to stick to — and you are liable to sway from the proper path that can take you where you want to go. To keep this from happening to you, make sure your plan is realistic, complete, and gets you to your ultimate financial goals. Also, make sure you communicate these long-term goals to your spouse and your financial planner to ensure you are all on the same page.
3. Don’t take your Social Security too early. Although you can technically begin taking your Social Security as early as age 62, it is usually not a very good idea. Studies show that the longer you wait to take the money out, the better off you are. For instance, from age 66 to age 70, your Social Security check will grow at about 8 percent per year. Where else can you get 8 percent guaranteed with no risk? You cannot. Therefore, if you are really ready for retirement and your cash flow is adequate, wait until you are 70 to begin collecting.
4. Plan for unexpected events. So many people fail to plan for those “rainy day” financial expenses: You need a new furnace, or dental work, or you want to attend an out-of-town wedding. This type of thing happens more often than you would expect — so I always promised my wife that we’d keep enough cash on hand. I recommend you save enough to get you through five to six months of your living expenses. Keep that cash in a bank account that can be accessed quickly. You also need to be mindful of infrequent expenses that you can anticipate — such as taking a vacation or buying a new car.
5. Don’t underestimate your life span. Today, more than 70,000 Americans are over 100. Even more startling, more than 2 million Americans are currently in their 90s. And with longer life comes escalating health costs. Plan to be around for this extra time, and save accordingly.
6. Don’t ignore insurance — especially long-term care. On average, the amount of money needed in retirement to pay for medical expenses is $116,000 for men, and $131,000 for women. And as my colleague Dave Beck has explained, you should have enough life insurance to care for your family in case they outlive you. More and more people are expected to need long-term care sometime in their life. It is also important to make sure that your home and automobile are properly insured with enough liability insurance.
7. Make sure you have an estate plan.It is important that you have a will, have given powers of attorney to someone who has your best interests at heart, and that you also have a trust. To make sure you draft these contracts correctly, I believe it is a good idea to consult a lawyer to make sure you are following the laws of your state, etc. You can craft these documents yourself, using online tools, but in my experience that isn’t the best plan — mostly because you don’t know what you don’t know. For instance, you want to make sure that your possessions go to whomever you want to inherit them. You also need to be aware of how your loved ones can avoid probate. Make sure you carefully document your wishes regarding prolonging your life if you are critically ill. And, make sure your spouse or significant other has access to your retirement plans should something happen to you.
8. Keep track of old retirement plans and pensions. Odds are good that you have had more than one job in your career. It’s also likely that you have lived in more than one state. With all that moving around, it is fairly easy to lose track of a small 401(k) plan that you may have left behind. Remember that small pension plan that you had 20 years ago? There are also an extraordinary number of IRAs that people have opened up, put $2,000 into, and forgotten about. Over a period of time, these can grow into large amounts, which could increase your financial cushion in retirement. So look back and track these accounts. And if you do change employment or move to a new location, be sure to discuss all of your options regarding this money with a financial professional.
9. Consider working part-time in retirement. Another huge mistake that I often see is that many people don’t consider what they will do with their spare time once they retire. Some people tell me they are busier in retirement than they were when they were working. Other people don’t know what to do with themselves. I suggest getting a calendar and writing down what you do each week before you decide to retire. Then write down what you plan to do each week once you retire. Where will you go each day? Which hobbies will you pursue? How much time will you spend, and what do you want to do, with your spouse and kids?