The Biggest Retirement Mistakes to Avoid

Today’s post just scratches the surface of a very broad and deep topic “How to Avoid the Biggest Retirement Mistakes”.

A bunch of earlier posts I’ve fired off into the ethos of the FIRE pantheon with certifiable mistakes include not accounting for boredom in retirement, not having a defined purpose, and the absolute insanity of owning a BMW.

All are equally fraught with both financial and emotional risks. (Especially if said BMW is metallic blue, and leased.)

Nevertheless, if you don’t heed some of the advice noted below first and foremost, your money situation could be at risk, and then it’s game over, man. So, let’s buckle down for a quick read-up on Medicare, HSA’s, and getting airtight with your healthcare in retirement.

Danielle Kunkle Roberts,  co-founder at Boomer Benefits and contributor at Forbes Finance Council is our guest blogger today. Thank you, Danielle!

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According to a study done by Northwestern Mutual, nearly 80% of the adults in America are at least somewhat concerned about whether they will be able to live comfortably in retirement.

Out of all the baby boomers surveyed, about a third stated they have less than $25,000 put away for retirement. Some even said they didn’t have any savings at all. Many plan to work past 65, partly because they are concerned about rising healthcare costs.

If you hope to avoid being in the same situation when you are about to retire, you’ll want to avoid these retirement mistakes.

1: Failing to Discuss Your Health With a Financial Planner

We get it, your health can be a personal subject, and you may not feel comfortable discussing it with a stranger. However, failing to discuss your health with your financial planner can be a huge disservice to yourself when it comes to retirement savings.

Your health will play a big part in trying to figure out which health insurance plan is best for you once you hit retirement age. Since there are many options on how to structure your Medicare coverage, you must think about your medical usage and choose the most cost-effective plan for both your health and your wallet.

If your health isn’t in tip-top shape, you may need a Medicare plan with a higher premium so that your healthcare costs are better covered. If you don’t discuss this with your planner, you won’t be prepared to pay out those higher premiums. This could result in you having to settle for a plan with lower premiums and possibly less coverage.

2: Not Being Prepared for Certain Possibilities

We would all love to be able to work until we are ready to stop working. However, nothing is for certain, and there are some possibilities that could happen as you near retirement age. For instance, you could find yourself without a job suddenly. Ageism in the workplace is a real thing and can affect many baby boomers who planned to work past 65.

If you find yourself in this situation, you’ll need to replace your income that has disappeared. To prepare for this possibility, set up a separate savings account that will act as your monthly income if you are to find yourself unemployed. This emergency fund should have at least six months of living expenses in it ready to go should you ever need it.

Another possibility you should always be prepared for is an unexpected chronic illness. With chronic illnesses come large healthcare bills. You may or may not be able to continue working. Be sure you have considered how you will manage if you are unable to work for as many years as you had originally planned.

3: Failing to Enroll in a Health Savings Account

Many employers these days offer their employees an option to enroll in insurance that allows them to open a health savings account. A health savings account (HSA) is an account that you can contribute tax-deductible money to help pay for future qualified medical expenses.

The money grows and earns interest over time. This is a great tool to help you great the perfect nest egg of medical dollars for your retirement.

To enroll in an HSA plan, you must be enrolled in a qualifying high deductible health insurance plan first. If your high deductible plan is through an employer, the employer often times offers an HSA account through a partnering bank as well. If your employer doesn’t, you can usually open one at your local bank.

Health savings accounts are a great way to save money so that you can use the accumulated cash in the future for your immediate healthcare costs during retirement. You can use the money for Medicare premiums, deductibles, and copays as well as for routine dental, vision, and hearing expenses which Medicare does not cover.

Keep in mind that when contributing to your HSA, you cannot have any part of Medicare active. This means if you want to continue to contribute to your health savings account once you turn 65, you would need to delay enrollment into Medicare.

Save, Plan, Save

If you’re reading this and you’re not super close to retirement age just yet, start by simply saving as much as you can each month for retirement and paying off debts. Then begin working with a financial planner to plan for specific retirement costs including healthcare. Having a plan with specific goals is a great way to stay on track for your retirement.

Good stuff, Danielle. Though I’m not a huge fan of financial planners, fee-only advisors will at least provide guidance without ulterior motives, like commissions. And HSA’s? They are fantastic savings vehicles. We max out ours and only use it to pay for incidentals like office visits and Rx. For bigger ticket things like PRK procedures, we go out of pocket, to allow the HSA dollars to continue to grow for our use in old age.

If you don’t have an HSA, see if a low-deductible plan makes sense for your family. After about $2,000 saved, you’re able to put anything over and above into investment funds. Score!

Finally, I’d argue that the biggest non-financial retirement mistake is not having a routine figured out ahead of time. This is an intentional project that will help you avoid boredom and a feeling of lost purpose. Spend a good amount of time sketching out a daily routine. Include things that bring you joy and provide self-care.