Retirement preparation shifts into a higher gear the closer an individual approaches his or her retirement age. Unfortunately, many individuals can make crucial mistakes in these last few years that might impact their readiness to retire.
1. Paying Down Your Mortgage
Conventional wisdom says that individuals should have little to no debt as they enter retirement. That’s sound advice, except maybe when it comes to a mortgage. If the funds used to retire a mortgage could potentially earn more than the cost of the mortgage (less any tax deduction), it may make more sense to keep those funds invested for future retirement needs.¹
2. Not Considering Extended Care
Seven out of 10 individuals over age 65 will need extended care at some point.² And, it may not be cheap. Assisted living facilities, on average, costs $3,600 per month, while nursing home care, on average, costs $220 per day for a semi-private room.³ Understanding the costs associated with the various extended-care options may help you be better prepared.
3. Too Little or Too Much Investment Risk
Individuals often make the mistake of maintaining current portfolio risk levels, which may be too high for a near-retiree, or dialing down the risk level too much, which can impact the long-term growth needed to sustain retirement income.4
4. Overlooking Catch-Up Opportunities
For individuals age 50 and older, the contribution ceilings on 401(k)s, IRAs, and Roth IRAs are raised, which allows individuals closing in on retirement to potentially create a larger nest egg for their retirement years.⁵ ⁶
5. Preparing For a Post-Work Life
While retirement planning is usually focused on financial issues, perhaps the greatest retirement challenge is adjusting to a new world of almost boundless free time. How to fill this void requires years of preparation by exploring new interests, activities and hobbies. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
1. U.S. Department of Health & Human Services, 2016.
2. Genworth Cost of Care Survey, 2015.
3. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate.
4. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59 1/2, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70 1/2, you must begin taking required minimum distributions. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59 1/2, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70 1/2, you must begin taking required minimum distributions.
5. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59 1/2. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death. Employer match is pretax and not distributed tax-free during retirement.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.