Old age is not something most of us want to contemplate. It seems like an elusive mirage as we’re just starting out in our professional careers. Then, almost before we realize it, we find ourselves staring at our golden years on the horizon. Hopefully, you’ve spent a portion of your life preparing for this coming thing called retirement.
A sweet deal
The notion of retirement generally seems like a sweet little deal. You don’t have to do the 9-to-5 grind anymore and you can finally head to Florida. But not working has its downside: no work means no paycheck. So you’ll not only need to plan for this time in your life, you’ll need to avoid some common mistakes that can derail your plans both on your way to retirement and after you get there.
Avoid day trading
Simply put, the odds are stacked against you in day trading. Not only do about 70 percent of day traders lose, but they lose big. Rarely do they even recoup the money they put up. If you do get lucky, the burden of commissions and taxes can easily wipe out any gains you make. Day trading is not a good way to pass your time, before or after retirement.
Know your health-care costs
On average, only 22 percent of couples factor potential health care costs into their retirement planning. The naked reality of our golden years is that Medicare, if it even continues to exist for another 10 years, will probably not be enough. Long-term care insurance is probably a good idea. You should also consider saving more and delaying the collection of your Social Security benefits.
Don’t forget to budget
When you retire, you’ll probably be living on a lower income than you have during your working years. Social Security, if it remains solvent, and other income streams may be able to make up some of the slack. You need to be prepared, however, should you find yourself living above your retirement means. This could leave you burning through your savings much more quickly than you’d like. Build a budget and stick to it. Practice living on your retirement budget for a few years before you actually retire.
Don’t abandon the stock market
Often times, retirees get out of the stock market completely, thinking they’ll be safer if they stick to fixed-income investments and their accumulated savings. Most will tell you that stocks are just too risky. These accounts, unfortunately, generally gain more slowly, falling behind the inflation rate. There are plenty of investing guides available to help you see the error of ditching your stocks. A diverse portfolio can provide growth that matches or beats inflation rates and can provide income.
Uncle Sam will come for you
Are you aware that retirement accounts, investment income, Social Security benefits and most other financial products all have taxes attached to them? The IRS is aware of it; you can bet on that! Social Security can be taxed if your income surpasses a certain threshold. Money withdrawn from an IRA or 401(k) adds to your taxable income. You also have to take into account any private pensions and stock sales you make. You’ll need a financial plan in place to minimize your tax obligations on your retirement benefits.