Many of us aren’t addressing the realities of retirement planning. People tend to think of retirement as an abstract concept, so far in the future that they can hardly relate to reaching it—that is until the time sneaks up on them. 

Most people either put off saving for retirement until it’s so late that they have to play catch up, or they simply set aside as much as they can with no further planning. But the reality is, without considering possible pitfalls and opportunities along the road to retirement, you can find yourself facing some major regrets. 

This is why it’s helpful to know some of the worst mistakes being made today when it comes to not planning for the reality of retirement.

Underestimating life expectancy

Twenty-five years ago, insurance companies estimated life expectancy at 83 years. Despite the volumes of media coverage generated over recent years about our increasing life spans, many investors still underestimate – often severely – just how long they could live. This can wreak havoc with retirement planning and finances. 

Many financial planners now develop retirement plans based on a life expectancy of 90 to 95 years. But while people claim to understand this possibility intellectually, the implications of longevity haven’t been an integral part of their thinking when it comes to retirement. We all want to live a long and healthy life, but how will we do so if we don’t have the money to support ourselves?  

Failing to consider long-term care needs

When you are young, relatively healthy, and able-bodied, it’s difficult to think of yourself as someone who may need long-term care at some point. But as we advance into old age, no matter how well you’ve taken care of your body and mind, chances are your body will begin the natural process of aging. But it can also be a costly one if you need long-term care.

When most people think about saving for retirement, they look at their current expenses, factor in inflation, and consider the kind of lifestyle they would like to maintain as a retiree. This kind of thinking misses some likely realities related to healthcare needs, medications, and long-term care.

The question you must ask yourself is, “Could my nest egg cover the potential cost of long-term care?” What if you need to enter an assisted living home or memory care facility? And what if you are still relatively young when the need arises?  

Premature long-term care can be steep and difficult to cover. However, the notion of spending a few thousand dollars a year for long-term care insurance, versus the possibility of hundreds of thousands of dollars in the future, is smart money management.  

Making large loans to family members

If you are retired or on track for a comfortable retirement, it can seem like you are in a great financial position. Simply looking at your assets and account balances compared to what you owned when you were younger can give you a sense of security and accomplishment. You’re probably going to be okay and that’s certainly something to be proud of. 

But remember, the wealth you’ve accumulated is yours. You’ve worked hard to earn and save it. And it’s meant to support you. You don’t know what your future holds, especially in terms of medical expenses and long-term care. 

The thing is, your children and other family members may recognize that you’re doing pretty well for yourself and hope they can count on you to help them out.  A family member may ask you for a large loan for a house, college, or to start a business. 

But even if you actually have the money, you may not really be in a position to be as generous as you would like. The reality is, big withdrawals from your nest egg early in your retirement can seriously crimp your spending in later years. Instead of that money working for you and growing, you are risking it by handing it over to someone else.

If you truly have it to give and you are able to be generous, do so, but not if it’s at the expense of your financial future.

Underestimating expenses in retirement

In generations past, the expectation was that your expenses would drop drastically during retirement. Your house is paid off, you’ll be less active, you’ll go on one dream vacation of a lifetime, and then and you’ll just sit in your rocking chair knitting all day for a few years until you expire. Thankfully, those days are long gone, but it comes at a cost. 

Don’t think you’ll be spending a lot less money when you retire – forget all the old rules. 

Today, the reality is many retirees are healthy, they travel more, and they’re fixing up their houses. Maybe their spending slows in later years as they become more elderly and less able to move about, but not at first. 

If you don’t have a handle on current cash flow and expenses, you can’t get started on retirement planning. Not only will you want to factor in inflation, but also assume that you and your friends will continue to host dinner parties, spend weekends at the lake together, go to the spa, and play golf or tennis—you know, the things you like to do now. You’re not going to suddenly shut down and become boring on your last day of work. 

Your grandma’s penny-pinching leftover casserole budget probably isn’t going to cut it. It’s smart to be frugal, but you also need to be realistic about your comfort and happiness.

As you prepare for retirement, keep in mind that this is a significant season of your life. As you wrap up your wage-earning years, there’s a good chance you will have many years of living ahead of you. It’s important to avoid financial mistakes on the road to retirement, but you don’t want to miss the forest for the trees. 

Focusing on your nest egg to the exclusion of all else

The lesson here is while the need to grow your nest egg is critical, you cannot focus only on finances and neglect the most important part of later life. How are you going to spend your time and fill your days?

Many people lose their way when they stop working. If you are accustomed to getting up every day, focusing on the tasks in front of you, and contributing to something outside of yourself, it can be challenging to know what to do when that time is free to do whatever you want. Many say they can’t wait to stop working only to find that their days feel empty when nobody is relying on them to get something done. Depression among retirees is pretty common.

The good news is, you won’t be blindsided by this. Once you are aware that, ”Hey, I need to start making some plans for how I’m going to spend my days,” a world of possibility opens up. 

Schedule regular time with your kids and grandkids, but remember their lives are probably busy, so don’t take it personally if you don’t get as much time with them as you would like. You might want to consider volunteering, taking up a hobby, or joining social clubs with your friends. 

Many of us don’t prepare well to retire. Some invest money fairly consistently along the way but don’t prepare their life for smooth and fulfilling transitions.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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