Yesterday, I found out that I screwed up big time. I have been working on a new report for a client that is helping him to launch a new business.
Turns out that during our last meeting I had accidentally wrote the deadline in the wrong box on my calendar. So yesterday I get an email from the client checking in to make sure everything is good to go. That’s when I realized I had the due date wrong—by a whole week!
It looks like for the next couple of days I’ll be pulling all nighters and working around the clock to get this project done on time. Luckily I think with a big pot of coffee I won’t screw up my client’s plans to launch his new business. This screw up won’t be one I can’t come back from.
We all screw up, but sometimes there are screw ups so bad you can’t come back from them. Take your retirement for instance. You can screw things up easily if you don’t pay attention.
Sure there are the obvious ways you can screw up your retirement plans—not saving enough, not saving early enough, pulling money out of retirement accounts early. But this letter isn’t about the obvious. It’s about 5 actions that will screw up any and all chances you have for enjoying a fruitful retirement if you don’t get a handle on them right now.
Screw Up #1: Supporting Your Adult Children
I have an aunt who has 3 grown boys. Her eldest son has 2 children with his ex-wife, but hasn’t had any kind of steady job in over five years. He lives with her and doesn’t contribute anything for bills. My aunt, who I’ll call Jody, is practically raising her two grandchildren. They spend most days with her, she picks them up from school and buys them clothes, food and essentials like diapers. In her retirement she has become an unpaid nanny. She doesn’t get to relax and spend as much time with her friends or travel like she wanted to.
I have another family member who pays his grown child’s car payment. She’s nearly 30 years old at this point, but he says she can’t afford the expense yet. What I don’t understand is how she has things like an iPad, just traded up her tiny apartment for a house to rent, has the newest iPhone and went to Mexico on vacation last year but can’t afford to make her own car payments.
I’m not saying this conversation won’t be easy or without raised voices, but if you find yourself giving your adult children money (either directly or indirectly) you need to make them understand you are not able to support them anymore. You are not the family bank. You can no longer afford to support yourself and your grown children and their children. Your children will be alright, they’ll have to scale back their lifestyle, sure, but teaching your children how to support themselves is a valuable lesson.
Screw Up #2: Thinking You Can Keep Working
In this day and age office jobs are the norm. We sit at a desk behind a computer screen and have few physical requirements to get the job done. Combine this with the fact that people are living longer these days and many retirees get it in their heads that they don’t need to save as much or as early because they’ll be able to work a few years longer.
The unfortunate truth is most people are forced to retire before age 65 or earlier than they intended to. While it’s illegal to discriminate based on age, corporations don’t like older workers. You might be pushed out of your job because you make too much money or keeping you on might raise your company’s health care premiums. All these companies have to do is make up some excuses to get you out, it can be hard to prove you were let go because of your age.
Don’t make your retirement strategy based largely on working longer. You might be surprised how early you are forced out of your company and then what will you do? Plan to work as long as you can, but be ready in case you can’t.
Screw Up #3: Ignore Your Health
Health care costs in retirement are frequently underestimated. What someone spends on healthcare when they are 60 will be less than what they spend in that category when they are 70. If you think your healthcare costs will stay the same or only rise marginally year to year, think again. Data from the Bureau of Labor Statistics suggest that spending on health care increases by 25% during the first decade after age 65—even while overall spending drops.
If you have any chronic health problems or a family history that indicates you might have some health issues in the future then rest assured your healthcare costs will go up even more than you think. Ignoring this fact will only erode your retirement savings that much faster and screw up all your plans. Instead estimate on the high side for healthcare costs and plan to replace a higher than expected amount of your income in retirement.
Screw Up #4: Retire With a Large Amount Left on Your Mortgage
It’s best not to retire until you’ve paid off your mortgage completely, but that’s not always possible. If you plan to retire with a significant amount of your mortgage still left to pay though, that’s going to screw up your retirement.
Everyone expects their expenses to drop once they retire. It’s hard to do that when 20-25% of your income is still going towards your mortgage. That may be sustainable in your early retirement when you feel flush with money, but as the years go on and your savings dwindles paying your mortgage will become harder and harder.
Make paying off your mortgage a priority. In the 10 years before retirement age make extra payments so you cut down the time left to pay off your mortgage.
Screw Up #5: Believing One Savings Vehicle Is Enough
Pensions are a dying breed in this day and age. Less and less people are retiring with them. Those that do should be careful to base all their retirement savings on just it. Governments and companies across the U.S. are underfunding their pension plans by billions. And that’s if your former employer doesn’t go bankrupt while you’re still collecting checks.
Don’t think this will happen to you? Just ask anyone in the airline industry. Retirees in this industry saw their pensions shrink significantly when their employer went bankrupt. Many received just $0.25 on the dollar. Same goes for those in the auto industry and government workers.
It’s not a solid retirement plan to rely solely on a pension for income in retirement. No industry or company is immune to this danger. Make sure to contribute to an IRA or 401(k) plan so you don’t put all your retirement investments in one basket. You’ll rest easier knowing you have a backup plan in place.
The bottom line is even after you retire you can severely screw up your money if you aren’t careful. You’ve got to be aware of the dangers that can befall your finances at all stages of your life. Remember everyone is out to get as much of your money as you’ll let them. It’s up to you to stop the bleeding and put the kibosh on unnecessary spending in your golden years.
If you address these issues and plug these holes you should be able to live a long comfortable retirement.
Keeping Money in Your Pocket,