Retirement is a major milestone that brings about quite a few life changes, but one thing that doesn't change for most people is the fear of running out of money. A recent survey found that the single most frequently reported retirement concern is outliving savings and investments. In addition, 47% of retirees don't believe that they've built a big enough nest egg to last through retirement. So, now is the time to face your fears.
Take a look at Kiplinger's "12 Ways to Go Broke in Retirement" and learn how to avoid them.
Relying on a single source of income. Multiple income streams are better than one, particularly in retirement. Social Security is the primary source of income for 61% of retirees, according to the Transamerica Center for Retirement Studies. Social Security will only be able to pay 77% of promised retirement benefits beginning in 2035. A pension or inheritance likely won't be enough to support you through retirement either. But when you put them together, along with your 401(k)s and IRAs, then you have a more stable and diversified financial base upon which to rely in your retirement.
You get sick. As you age, your health is bound to deteriorate, and getting the right type of care is expensive. Make sure you're doing all you can to cut healthcare costs in retirement by considering supplemental medigap and Medicare Advantage plans. Review your options every year. In addition, long-term care increases the bill further. Consider getting long-term care insurance to help cover those costs, and use these ideas to make it affordable.
You tap the wrong retirement accounts. This mistake probably won't leave you flat broke, but it can cost you. The most tax-efficient way is to draw down the principal from your maturing bonds and certificates of deposit first, as they are no longer bearing interest. If you're 70½ or older, take your required minimum distributions (RMD) from your IRAs and 401(k)s. There's a big IRS penalty for failing to take RMDs. Then, sell from your taxable accounts, on which you only have to pay the capital gains tax. Finally, withdraw from your tax-deferred and Roth accounts, in that order.
You don't think about taxes. Where you live impacts what you pay in taxes significantly. That's one reason why people flock to Florida and Arizona after they retire. In addition to warm weather and sunshine, those states offer some of the country's most tax-friendly environments for retirees. Taxes alone shouldn't dictate where you live in retirement, but they do enter into the equation.
You are underinsured. Insurance isn't the best place to cut costs. Adequate health coverage is critical to preventing a devastating illness or injury from depleting your nest egg. Medicare is very complex, and it's more expensive than people realize, so it should be part of the budgeting process. Also, you need to consider other forms of insurance because your chances of having accidents both at home and on the road increase as you age.
Reference: Kiplinger (March 2016) "12 Ways to Go Broke in Retirement"