Since the first baby boomer retiree started collecting Social Security payments in 2007, millions more members of this influential generation have said goodbye to the workforce and hello to what they undoubtedly hope is a long and enjoyable retirement. Currently, as many as 10,000 baby boomers are retiring every day, according to statistics from the Pew Research Center.
Unfortunately, not all of those eager retirees are totally prepared for their golden years. These unprepared boomers face some big retirement challenges. Fortunately, many of them are surmountable, provided you know what to watch out for. Here are five big retirement pitfalls baby boomers need to guard against.
Retiring Too Soon
Boomers have seen a lot of changes in the retirement landscape over the course of their lives. Many plan to rely on a mix of pensions, personal savings, and Social Security to support themselves in retirement. Unfortunately for some, that three-legged stool may be wobbly, failing to provide them with the income they need for decades to come.
A lot of boomers are aware of the gap between their retirement needs and what they have saved.
In fact, Pew’s study found that 60% plan to delay retirement because they can’t afford to stop working.
The remaining 40% may be in a better place financially than their peers. Or they may not have given retirement much thought yet. Not carefully projecting your retirement income can lead some people to retire too early, only to find out a few years later that their money doesn’t go as far as they hoped. Smart planning can help avoid this pitfall.
Spending Too Much
After decades of working, many boomers are eager to spend their retirements indulging in the hobbies and adventures they’ve put off over the years. Given that today’s older adults are healthier than ever before, it’s not unusual to find retirees living very active — and very expensive— lifestyles.
That’s great in many ways, but boomers who want to get out and see the world run the risk of draining their bank accounts too soon. That doesn’t mean you have to curtail your dreams, but it does mean you should plan for them. If an around-the-world cruise is on the agenda, make sure you’ve budgeted for it.
Not Being Smart about Social Security
Sixty-five percent of Social Security recipients get at least half of their income from the program. Even those who are less dependent on Social Security checks still count on that money to get them through retirement. It’s an especially valuable source of income since your Social Security payments are consistent and adjusted for inflation.
For those reasons, it’s especially important to make smart decisions about when to take your benefits. If you start your claim early, you could lose out on thousands of dollars over your lifetime. Generally, it’s better to delay benefits for as long as possible, though there may be times when an early claim makes sense. Given how complicated Social Security can be, it’s often best to talk to an expert about how to get the most out of the program.
Not Planning for Healthcare Costs
A 2014 Financial Advisor magazine survey found that 62% of baby boomers are terrified of healthcare costs in retirement, while 72% said it was their number-one retirement concern. They have good reason to be scared. One study found that healthcare costs will eat up 67% of older boomers’ lifetime Social Security benefits. Younger boomers may end up spending 90% of their Social Security on health costs. While it can be hard to predict exactly how much you’ll need to spend in this area, you can manage the costs by setting aside funds for healthcare (perhaps in a health savings account), purchasing long-term-care insurance, and taking steps to stay healthy.
Not Emotionally Preparing for Retirement
One of the biggest retirement pitfalls for boomers has nothing to do with money. Rather, it has to do with planning for the emotional changes that come with retirement. Particularly if your life revolves around work, the transition to retirement years can be difficult. While thinking about whether you have enough money to retire is important, you should also think about how you plan to fill your days once you stop working. If you and your spouse are suddenly in the house all day together, that can also be an adjustment.
Before you hand in your notice, look into volunteer work, part-time jobs, and social activities that can fill your days. You may even consider a retirement dry run — taking a few weeks or months off from your job and living as if you were retired to see how you like it.
Make sure you avoid any potential retirement pitfalls by calling to discuss your plan.