Our golden years are something that we look forward to all our lives. We daydream about the opportunity to spend time with loved ones, travel the world, participate in our favorite hobbies, and sleep in late if we want to. All of these things are achievable with the right planning, but there are also some costs mistakes that you can make which can jeopardize these plans.
By preparing ahead of time, you can make sure to avoid these mistakes and keep your feet on a steady path toward a golden retirement.
No HealthCare Cost Planning
If you’ve been working with a financial planner to put together your retirement goals, it’s important that healthcare costs are a part of this discussion. It can sometimes be awkward to discuss our health, but keep in mind that you don’t need to disclose health conditions – you just need to plan for your health usage.
Talk to your planner about how often you use healthcare services and then plan carefully for the type of coverage you’ll need to cover that medical usage.
Many pre-retirees mistakenly believe that Medicare costs nothing and will cover all of their medical needs. This is far from the truth. While most people enter retirement with Part A benefits paid up, everyone needs to pay for Part B outpatient coverage and Part D drug coverage at a minimum. Think of this as paying for health insurance just like you do now.
In addition, there are deductibles to pay on both your hospital and outpatient coverage and some drug plans have deductibles too. There will also be copays and coinsurance for services as you use them, similar to the way you pay copays now when you visit the doctor or fill a prescription.
Many Medicare beneficiaries purchase Medicare supplement coverage to help them fill in these gaps, so this is yet another expense you need to plan for.
Ask your financial planner to help you estimate your future costs for Medicare coverage and discuss which type of supplemental coverage would best meet your needs based on your medical usage. Then set a goal to save up for these things.
Failure to Account for Long-Term Care
Another cost which many people fail to plan for is long-term care. Insurance companies have estimated that 1 in every 2 people will eventually need some form of long-term care. Again, many pre-retirees believe that Medicare covers long-term care but it does not.
While Medicare will cover your medical services throughout your lifetime, it will not cover the costs of living in an assisted living facility or nursing home. It also doesn’t cover the cost of custodical care in your own home, so if you are still living independently and just want to hire some part-time help with accomplishing activities of daily living, this is a cost that you will pay privately.
Be sure to set aside extra retirement savings for this potential cost. You can also look into purchasing long-term care insurance that will help you to pay for some or all of these costs should you ever need them. The earlier you purchase long-term care coverage, the lower the premiums will be.
Entering Retirement with Debt
One other mistake that many people make is not planning to pay off all of their debts before they retire. Keep in mind that you will likely be living on a fixed income in retirement and every expense will eat up a portion of that. The average Social Security check in 2019 is around $1400/month, but many people get less than that because they decide to file for benefits early which reduces the amount of their monthly benefit.
If you can pay off your mortgage and vehicles and enter retirement with no credit card debt, you will find it much easier to meet your monthly living expenses. Consider downsizing your home to reduce your monthly mortgage payment in the ten years preceding your retirement. This may help you to get ahead on your mortgage and be able to pay it off before you turn 65.
You can also consider working part-time after you retire from your full-time career. Many retirees these days work side jobs to earn extra money that helps them pay off debt. Consider pet-sitting or driving for Uber or Lyft or perhaps there is something you are passionate about like gardening that would allow you to get a part-time job at a nursery. Any extra income that you can use to help you enter retirement debt free will help.
These tips will help you to prepare for a worry-free retirement if you implement them early enough. Careful planning is the key to happiness in your golden years.