Time and careful planning are what you need to retire and live happily ever after, but many retirees wind up with regrets. We've talked to senior financial planning experts and their would-be clients alike to discover several of the most common ones. If you’re still in your working years, you've got time to right some and leave regret-free.
The top regret overall seems to be not saving for retirement early enough. "Getting started early is the single most important thing an individual or family can do to put themselves on track for a financially healthy retirement. Many individuals and families wait too long to start saving for retirement, and then they have to play catch-up later in life. Starting later means we miss out on the most powerful friend we have in achieving our retirement goal — compound interest," says Brent Weiss, CFP, co-founder of Baltimore-based Facet Wealth.
Related: Ways to Jump-Start Your Retirement Savings If You've Been Procrastinating
Your house can be one of the biggest assets for a retirement. But the goal should be buying a house you can pay off before the big change, which is why many retirees regret buying a much bigger house than they actually need. Having paid off a house frees up income for other expenses, such as the increased health care costs many seniors face. Downsizing to a smaller home is one way to cut costs later in life, but there are plenty of pitfalls to avoid with downsizing as well.
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Instead of banking their raises and bonuses, people often buy big, expensive things they think they need; retirement often makes people realize — too late — that the purchases were foolish. Workers with little vacation time often also use consumerism as a substitute, but those things are just as hollow later in life, says Jonathan Look Jr., a retiree and retirement expert at Life Part 2.
You can have too much debt before retirement, which will mean less savings to rely on, and you can carry debt into retirement, which means being burdened. "With greater access to debt, we have seen the average household debt level rise, even amongst the senior population," Weiss says. "Whether it's a mortgage, or a car loan, or credit card debt, these loans can be hard for a retiree on a fixed income to manage if not properly planned for. There is an emotional element to this as well. Having debt in retirement simply feels like a burden."
Related: Tactics for Getting Out of Debt
Aside from not saving early enough or saving enough, many families don't know how much they need to save. This can result in putting off saving altogether, because it is such a challenge to know where to start, Weiss says. To solve this, individuals and families need to envision their retirement and what they expect out of it, then put hard numbers to that vision and make a plan toward that goal.
To reach your financial retirement goals, you have to plan, starting with a budget before retirement. "Many seniors realize they never knew just how much money they spent per year before they retired as they had never truly tracked their spending. This then causes seniors to then not know how much money is required to sustain their lifestyle going forward," says Renee Fry, CEO of estate planning site Gentreo. "From homes to travel to food and daily living expenses, seniors need to plan for the life they dreamt about or they will regret not being able to live the lives they dreamed of for so long."
Many people in retirement realize that a frugal lifestyle saves in the long run and regret not embracing this sooner in life. "There is a simple equation that defines success in almost all financial plans. Spending less plus saving more equals greater financial success for a defined goal," Weiss says. "Families that understand there needs to be a balance between our lifestyle today and our savings for tomorrow find themselves in a healthier position financially when they approach retirement."
It's common for people to retire with assets of a home, 401(k), and maybe a Roth IRA. But you can get a lot further with more diversification. "Having different buckets of retirement assets that are taxed differently can give seniors a great deal of flexibility in creating income and reducing their tax burden during retirement," Weiss says.
Many retirees regret not investing more money or not investing it the right way earlier. Many would have much more in retirement savings if their younger self had invested better earlier. According to Dave Ramsey's investing advice website, you should divide your mutual fund investments into four parts: growth; growth and income; aggressive growth; and international. A good financial planner can help you spread your investments across these buckets to maximize your planning.
As you get older the chances of losing a spouse increase. Many people are in denial and don't plan for this major life event. "When one spouse passes away before the other, life, income, and taxes change. So a plan needs to be in place should this happen to you," says Michael Foguth, founder of Foguth Financial Group. A financial planner will be able to help.
Seventy percent of Americans over the age of 70 will require long-term care at some point, according to insurance consultant Zack Taylor. "Most people think of long-term care as living in a nursing home or assisted-living facilities, but 70% of claims begin when they're living at home," he says. "The average amount of time people need long-term care is five years, and the average annual cost is $100,000. Somebody is going to have to pay those expenses, and it will come out of your estate if you don't." One option is instead of going for a use-it-or-lose-it type of plan, find one where if you don't end up needing it, you can leave the money to a beneficiary or get it back after a surrender period, Taylor recommends.
Related: What is Assisted Living, and Other Important Questions Answered About Senior Care
One common regret among retirees is claiming Social Security too early. You can begin claiming it at 62 years old, but it pays to wait. Claiming benefits at age 62 means payments will be 25% to 30% lower than if you waited just a few more years. Age 66 to 67, depending on the year you were born, is when you can claim your full Social Security payment benefit. Even better, payments after that rise 8% annually up to the age of 70.
If you aren't financially burdened to keep working, then why would you work when you could retire? Maybe you love what you do and it doesn't feel like work, but that isn't the case for a lot of people. "Retirement is a time to learn new things and have new experiences," Look says. "Unfortunately, hanging on too long causes you to deplete what is ultimately you most valuable resource — time. I have yet to meet anyone who says they were sorry for retiring early."
