The Golden Years are the times in our lives when we look forward to enjoying the freedom afforded us by a lifetime of having worked and saved. We anticipate our retirement years as times when we can enjoy the fruits of our labors and spend time in pursuit of hobbies we hadn’t had time for previously.
The truth, though, for many individuals as they near retirement age is that they may not be as prepared as they’d imagined they were, nor have they used their accumulated wealth in the most fiscally sound manner.
Many of us that have reached, or are nearing retirement age, understand that planning for retirement is difficult, but living in retirement can be even more of a challenge. There are steps that can be taken, and retirement myths that must be debunked for those of us that are nearing retirement age, they are:
Having $1 million in cash, assets and 401Ks will be enough. In the past, this may have been true, but in 2013, $1 million doesn’t buy what it used to, and saving that much in assets is out of reach for many middle class Americans. Working with a financial advisor and making certain he understands your retirement desires – travel, lifestyle, etc. – will go a long way in help you ensure you have the funds you need when you’re in your Golden Years.
- Healthcare costs may be a big budget item, but it’s not likely that it will be the biggest you will face in retirement. The number one expense most retirees face are taxes. The fact that many individuals will be drawing money from assets they have enjoyed tax deferral status on during their working years, is not one that is always considered when retirement draws near. It’s important to work with your financial advisor to devise a plan to meet the tax responsibilities that arise when you begin drawing on your tax deferred retirement savings.
- Moving to a smaller home will reap large rewards. While in some instances a smaller home may be more beneficial for some individuals, downsizing to save money may not be the end result. In some cases, it may be more cost effective to remodel the existing family home to meet the needs of the aging residents. When you consider the fact that many seniors will have paid off the family home, it may not make sense for them to take on another mortgage payment. For example, closing off the upper floors and moving the living space to a ground floor may make more sense. Age-proofing the home with updated, senior friendly bathroom fixtures and rearranging cupboard space could be more cost effective and allow the senior to age in place in familiar surroundings. Additionally, the investment in a home medical alert system also provides peace of mind to the senior and the family members that if a medical emergency arises, the senior will have immediate access to health care at the push of a button.
- Speaking of homes and mortgages, it may not always make sense to pay off one’s home mortgage early; this hinges on the interest rate on the home as compared to interest rates on other items you’re paying off on a monthly basis. If you have a mortgage that has a low interest rate, and if mortgage interest remains a tax deductible expense, it may make sense to simply pay additional amounts on the monthly mortgage payment rather than cashing in a retirement account to pay it off entirely. Paying off high interest rate car loans or credit card debt is a more fiscally sound approach.
- Don’t rely on Medicare to cover your healthcare expenses. The purpose of Medicare is to provide coverage in the event of a catastrophic illness or injury, not as a way to cover healthcare costs. Medigap and other supplemental coverages are available for individuals in need of healthcare coverage. It is best to check on costs and providers for additional healthcare coverage prior to retirement.
Planning early for retirement is the best course of action, but even those individuals who haven’t taken the time to meet with a financial advisor in the past, can reap the benefits as a way to make living in retirement a more enjoyable venture.