At the beginning of the 20th century, employer-sponsored pension plans were the very backbone of retirement, providing older Americans the financial stability they required to live comfortably and with dignity. That promise seemed to fade as the Great Depression struck, wiping savings accounts and disrupting retirement plans by unleashing widespread unemployment and its subsequent devastation.
However, hope was restored when President Roosevelt took office and signed the Social Security Act into law in 1935. As soon as people could find work, their minds were finally set at ease. After all, a steady job with an established company not only promised a pension plan, but further support from Social Security as well. This shift in favor shifted the perspective of retirement, earning it the nickname, “The Golden Years.”
Unfortunately, retirement no longer appears golden in the 21st century. Members of the Baby Boomer generation is suffering quite a bit of strife as they exit the workforce, discovering they underestimated how much money they would need to comfortably live out the last portion of their lives — especially as pensions become harder to find and Social Security benefits continue to decline.
Thankfully, members of Generation X and the Millennial generation have been afforded the opportunity to learn from their parents’ and grandparents’ financial mistakes. With that in mind, let us highlight the biggest mistakes to avoid while planning for retirement.
The worst mistake one could make in preparing for retirement is not preparing at all. While it could be assumed that members of these younger generations are too focused on the present to think of their future wellbeing, it seems as though many simply do not know how to begin making these vital plans.
Therefore, to ensure one’s journey to retirement is a smooth one, it is imperative to start laying the foundation to retirement sooner rather than later. This feat can be achieved by searching for and regularly meeting with a trusted financial professional, who will be more than equipped to help individuals invest and save money for their future.
Claiming Social Security too early
It is no secret that many hard-working individuals wish to retire early. However, reaching such a goal comes with a hefty price — literally. Claiming Social Security at 62 results in a 25 percent reduction in benefits. Therefore, in order to make the most of this form of supplementary income, it would be wise to wait until one reaches full retirement age — which ranges from 66 to 67, depending on one’s year of birth — before applying to receive benefits. Otherwise, one will only be robbing themselves of further financial stability down the line.
Often times, those preparing for retirement assume they will spend their money on housing, food, and other basic living expenses. However, recent research has shown that retirees spend as much as 64 percent of their Social Security benefits on healthcare and other medical expenses.
Unfortunately, these costs are only projected to rise, as Americans seem to be developing critical health conditions earlier than ever before. Therefore, it would be beneficial to plan for the worst-case scenario — such as paying for assisted living or other forms of long-term care — and save accordingly.
Retirement is a multifaceted challenge, as one can never truly know what to expect in their later years. However, it is imperative to begin planning sooner rather than later, as it is obviously better to be over-prepared than completely caught off-guard.