5 Most Common Pre-Retirement Mistakes
Being in the home stretch leading up to retirement can feel great, but financial advisers say even the savviest people can miscalculate or overlook important components when it comes to their retirement plans. Here are the most common pre-retirement mistakes you need to watch out for, according to financial planners:
- Not creating a Social Security strategy. One common mistake is not really thinking through when to start Social Security. In general, the breakeven age for Social security is in the low 80s. Married couples need to factor in the age of each spouse, expected lifespan and their respective work histories to figure out when to start claiming benefits.
- Paying off your mortgage. Conventional wisdom says you shouldn’t enter retirement with mortgage payments hanging over your head, but if you took out a mortgage or refinanced recently, it’s possible that your interest rate is lower than what you would earn if you invested the money. For instance, assume your nest egg is netting you a 7% return. If your mortgage interest rate is only 4%, it’s better to keep your money where it is because you’ll pay less to service that debt than you would earn by keeping it invested.
- Taking your portfolio too conservative too soon. People in pre-retirement often make the mistake of retreating from riskier asset classes too early. Depending on when you retire, you could live another 20 or 30 years. People assume they need to shift a big chunk of their portfolio to lower-yielding investments to safeguard it, but they forget about the flip side of investing risk: the creep of inflation.
- Skipping long-term care insurance. Paying out of pocket for long-term care can drain your nest egg. Living in a nursing home costs more than $80,000 a year, on average. Even assisted living or other forms of support can cost several thousand dollars a month. If you’re in pre-retirement and above that age, it doesn’t mean you’ve missed the boat entirely, but it does mean you have a dwindling window of time to get an affordable policy. Pre-retirement, the cost of insurance to cover that risk is a lot less expensive.
- Not planning for a post-career life. Consider what activities or hobbies you’d like to pursue, and explore social groups and volunteer opportunities. If you’re thinking about moving, especially to a vacation locale, visit when the tourists have departed for the season.