Only a few can confidently say that they can live comfortably after they retire from work while many adults are unsure if they can live a good life after they retire. Not planning for retirement before you quit your job for reasons such as old age, sickness or other reasons will result in a difficult lifestyle after retirement.
1. Assuming that you can control when you retire.
Many people believe that they can live up to the age of 70 and can save up much more money along the way. But there are many who retire earlier in life, some even at just their forties or fifties due to a number of reasons. The most common reasons are job loss and illness. There are many jobs that have an age limit when it comes to hiring which is why those who lose their jobs at their forties and fifties have difficulties in landing a new one.
2. Not having medical plans.
Many retirees who retire at a late age tend to need medical care at some point due to old age and the many health problems they encounter. Retiree health care is slowly fading which is why many retiree couples who do not have medical plans have problems with the medical costs. Having medical plans ensure you that you will not have any difficulties when you retire and need emergency medical aid.
3. Retiring too soon.
There are people who quit their jobs early in order to enjoy their lives while believing that they have enough money to pay off their expenses in their retired years. However, staying on the job a few extra years can help increase your retirement income by a third or more. It also lets you avoid using your savings right away and delay taking Social Security benefits which increase about 8% every year you wait.
4. Ignoring the tax impact of distributions.
The main goal in retiring is to create a tax-efficient income. It’s helpful to have several kinds of accounts such as those which are fully taxable, tax-deferred or 401 (k) and tax-free or Roth IRA. That will give you the most flexibility when drawing down assets. You should also avoid taking early distributions. Around half of retirement plans participants tend to cash out their balances which triggers penalties and results in long-term growth of assets.
5. Drawing down retirement savings too rapidly.
Many people tend to outlive their retirement savings because they withdraw it too fast. You should always keep your annual drawdown rate to 4% of assets. At that rate, if you begin withdrawals at age 65 you should still have your savings for around 30 years.
