5 Things to Watch Out For in Retirement Planning

In popular lore, the idea of retirement has often conjured up images of no work, time with grandchildren, and frequent travel.  A time when we reward ourselves for working all those years.  Perhaps a lot of this would have been funded by a generous pension.

Well, that isn’t the reality for most people today, at least here in the U.S.  Yet, I suspect that there are a lot of people who are taking the ostrich approach, and burying their head in the sand when it comes to retirement realities.  They’re just assuming that somebody will take care of them, or that someday their ship will sail in.  The reality is that we are responsible for ourselves, and there is no ship that will sail in to rescue us.

But that doesn’t mean that we are all in trouble.  The goal of financial freedom is a nice one to have, and one that people can work toward if they start early enough in life.  Let’s just make sure that we take that journey while being aware of potential money landmines along the way.

Here are 5 things to watch out for when planning for retirement:

Underestimating Medical Expenses

I suspect that there are a lot of people, when younger, that don’t understand just how much health care can cost.  When I was in my early 20′s, I didn’t really have much exposure to health care costs.  If I got sick, it might have been the flu or an occasional sinus infection.  Get some antibiotics, and you’re done with it.

Well, as we get older, we start to realize that we aren’t what we were.  It happens to all of us. I’m still not old, but when I look at my parents who are now older, I see myriad health issues popping up.  Otherwise healthy people get things you couldn’t have really predicted.  There are costs associated with this, and these costs can add up.

It’s a good idea to really disregard whatever you might be spending on health care when currently much younger, and think of old age as a time where there will likely be big expenses.  Dismissing this reality by thinking that you never get sick, or that you’ll be certain to take great care of yourself, are both mistakes in my opinion.

Expecting to Work Into Old Age

Much like health, I think this is one area where there is a ton of overestimating of self-control over the situation.  If someone expects to work until old age, I ask the following question: “Why do you think you will even be given the opportunity to work in old age?”

Many people are employees.  How many older employees are out there? How many older employees can actually find jobs and convince employers to hire them? Ageism can be brutally unfair, but many things in life are unfortunately unfair.  To count on being employed or employable in old age is a dicey proposition at best.

Additionally, people might physically be unable to do a lot of work when older.  The choice might be removed, based on one’s health.  What it all adds up to is the reality that people may want to plan for a realistic retirement age, and then take a few years off that just to be safe.

Underestimating Lifespan

Living longer than we might expect to live sounds great, frankly.  I really hope to live a long life, personally.  Who wouldn’t?  In the event this positive development does happen, we want to be sure that we have the money to cover our expenses.

Procrastination

The power of compounding is incredible.  The friend of compounding is time, which really fuels the great impact it can have.  The earlier we start, the better off we are.  Every year we put off saving and investing is a lost opportunity.  Life is short, and our window of opportunity to truly earn and save isn’t as indefinite.  Nobody wants to live a spartan existence when older, much less a miserable one.

Withdrawal Rates

How much of your savings do you plan to withdraw each year? It’s good to understand cash flow and the impact of withdrawals on your nest egg.  This goes hand in hand with being conservative about longevity.  Better to realistically assess this well ahead of time, and take into account what your needs will be in the future and how much you will actually be able to withdraw.