2018 has been a volatile year in the markets, which can be hard on your retirement savings. Many do not think about their readiness for retirement every day, but the present market conditions seem to force us to think about it more. So, while we are on the subject, let’s address the 4 mistakes that most savers commit in regard to retirement planning.
Mistake #1 – Taking Too Much or Too Little Risk
Sure, taking too much risk can be costly, but taking too LITTLE risk can be just as harmful. The right answer is almost always somewhere in between in a diversified portfolio. Your time horizon to and through retirement matters just as much. Simply put, the more time you have until retirement, the more risk you can afford to take. In 2008, the S&P 500 fell 39%. However, it returned to its high only 22 months later. If you were 15 years away from retirement, that decline wouldn’t have had a significant impact on your retirement plans, but if you were 15 MONTHS away from retirement, it could have been devastating.
Mistake #2 – Miscalculating Savings Needs
Retirement is supposed to be cheaper than our working years, right? After all, there will be no commuting costs, no more paying into Social Security, and less eating out. It doesn’t always work out that way, and for good reason. These days, retirement often means more travel, more time dedicated to volunteer work in ministry, and maybe even more adventures that the Lord wants us to pursue. It can also mean more costs and responsibilities (caring for aging parents, keeping up with inflation, etc.) than we anticipated, which have to be carefully planned and managed. As a result, retirees’ actual spending can be much higher than they originally budgeted.
Mistake #3 – Failing to Plan for Social Security
Getting Social Security right is absolutely critical to your retirement success. In fact, half of Americans aged 65 and older rely on Social Security for half their income or more. For those with modest ministry incomes, it is even more crucial as a source of retirement income. Unfortunately, there are thousands of ways to file for Social Security depending on your situation, but only a handful of them will be right for you. Most take it at age 62 but don’t realize that their benefit can grow a risk-free 7-8% per year for every year they wait until age 70. For example, (based on a monthly benefit of $1,960 at Full Retirement Age, assuming living to age 90) a married couple could receive an additional $300,000 more during the course of their retirement. Strategy matters. Make sure you get help from an expert advisor.
Mistake #4 – Misjudging Healthcare Costs
Healthcare costs represent the second largest expense in retirement, behind housing. Many retirees assume that Medicare will provide all of the healthcare coverage they might need. Simply put, this just isn’t the case. According to the Employee Benefit Research Institute (EBR), Medicare currently covers only 62% of the expenses associated with healthcare services. While Medicare provides a solid foundation for your retiree health care, there are several reasons why it is important to consider supplemental insurance. Costs not covered for some routine medical services, no out-of-pocket limits, and limited prescription drug coverage are just a few. We have found that all-in costs average about $14,500 for a married couple per year in retirement. That is $360,000 for a 25-year retirement, so you can’t afford to misjudge these costs.
Servant Solutions Can Help
As you can see, planning for retirement can be complicated. There are mistakes to avoid and certainly ways to maximize what you may already be doing. Our goal at Servant Solutions is to help place you on the path to a successful retirement that allows you to maximize your service to the Lord. We spend an average of 20% of our lives in retirement. You only get one shot at it. You owe it to yourself, your spouse, and the Lord to get it right. Let’s get the retirement conversation started.