As you near retirement, it is more important than ever to save. More than saving, though, you need to have a plan. There are several mistakes people make when planning for their retirement. Some take their Social Security benefits too early. Others don’t have a budget for after they’ve stopped working, and some people don’t take advantage of catch-up contributions.
Avoiding these mistakes can significantly help you plan and save for your retirement.
Taking Social Security Too Early
Many retirees decide to file for Social Security benefits as soon as they become eligible. But what most people don’t realize is, if you wait, you’ll receive more of your benefits. Your Social Security benefits are based on your full retirement age (FRA). Accessing your benefits before that age can reduce your Social Security payments as much as 25 percent to 30 percent.1
There are also benefits to waiting beyond your full retirement age to claim your Social Security. In fact, if you wait, you can claim more than 100 percent of your normal Social Security payments. In general, your benefits increase approximately 8 percent for each year after your FRA that you don’t claim Social Security.2
Not Having a Budget
A budget is always a helpful financial tool, but it takes on added importance in retirement. With more time on your hands, it’s possible you may actually spend more money in retirement. Don’t assume that your expenses will automatically go down after you retire.
If you don’t have a budget, you’re not alone. A recent Gallup study showed that only 1 in 3 Americans prepare a detailed budget for their expenses.3
Having a budget in place is important for more than just monitoring your expenses. You could run into tax implications if you are not careful about how much and when you withdraw your savings. A budget can help you develop a distribution strategy, so you take money from the right accounts at the right time.
Not Taking Advantage of Catch-Up Contributions
Most workers under the age of 50 have a set cap on how much they can contribute to their retirement plans, like their 401(k) plans and IRAs.4 However, individuals who are 50 or older have the opportunity to contribute some extra money to those accounts.
Known as catch-up contributions, they allow you to grow your nest egg and keep more of your money once you retire. Catch-up payments are a great way to boost your savings in the final years before you retire. For example, in 2016, individuals age 50 and older can contribute an extra $6,000 to their 401(k) and an additional $1,000 to their IRA or Roth IRA.4
Ready to learn more about retirement planning? Contact us at Foote Financial. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
16114 - 2016/9/20