This story originally appeared on NewRetirement.
If you are thinking about retirement, congratulations! This is a big decision.
Did you make the right retirement preparations? Have you avoided the worst financial mistakes? Do you have the right retirement solutions?
A strong retirement plan can mean the difference between outliving your retirement savings and being able to sustain your lifestyle for as long as you live, no matter how long that turns out to be.
Following are several financial mistakes to avoid pre- and post-retirement and the retirement solutions that can provide you with security.
1. Not saving enough for retirement
Some people postpone their financial planning until a few years before they plan to retire, or they don’t plan at all.
Putting money into a 401(k) or an IRA every year is great, says certified financial planner Phillip James Sitar. But how do you know whether you are putting away enough? Remember, the nest egg that you have built up may have to last you 30 years or more.
“The earlier you start planning and saving for retirement, the more successful you’re going to be,” Sitar says. He recommends beginning to plan with a certified financial planner in your mid- to late 40s, and no later than your early 50s.
However, if you find yourself in your 60s without much of a plan, do not despair. Just take stock and make it work.
A good retirement calculator can help you assess what you have and what you need. The NewRetirement retirement calculator can even help you assess which retirement solutions will really help you have a secure retirement.
You do have options: Working longer, having a retirement job, lowering expenses and downsizing are a few of the ways people are planning retirement when they have not quite saved enough.
2. Not being debt-free before retirement
Some retirees have a hard time during retirement because they have not paid off their mortgage or other outstanding debts.
“That is a large expense that can more rapidly drain your nest egg,” Sitar says. “Ideally you want to be debt-free before you retire.”
Housing is the biggest expense for most households. If you can eliminate mortgage payments, you have a much better chance of having a secure retirement.
Plan ahead, so you have paid off your mortgage and any other outstanding debts before you retire.
If you cannot get the mortgage paid off, would you consider downsizing to reduce your debt load?
Conversely, you just need to make sure that you have adequate retirement income to cover your expenses. Lots of people do retire while paying off debt. It just takes more income.
3. Incurring hefty distribution-related penalties
Did you know retirees who reach age 72 have to take out required minimum distributions (RMDs) from their retirement accounts, otherwise they’ll be heavily penalized?
If you fail to take out the full RMD, it could result in a penalty of 50% excise tax on the amount you should have taken out, Sitar says. For instance, if your RMD is $20,000 and you do not pull that money out of your retirement account, you can get penalized $10,000.
Determine the required minimum distribution from all of your retirement accounts and be vigilant in sticking to it.
Set a reminder. Or, use a retirement calculator that helps you keep track of important dates. The NewRetirement retirement calculator has a complete to do list to help you maintain your plan over time.
4. Not buying a long-term care policy
Some people wrongly think that health care expenses are covered after retirement, Sitar says. And in the majority of cases, Medicare does not pay for the complete cost of long-term care.
This means that retirees will be dipping into their own savings to pay for this care. According to Sitar, the average cost of this care may be higher than $80,000 per year.
You could certainly invest in a long-term care policy before retiring. However, long-term care insurance can be prohibitively expensive. You might want to look at other options.
5. Overspending early on in retirement
When people come into a large sum of money, it is tempting to feel wealthier, Sitar explains. As a result, some people end up overspending during the first few years of retirement.
Having access to your retirement savings can be dangerous. The temptation to spend can be like the temptation to have a big slice of the chocolate cake that was left out on the counter.
Conventional wisdom is that you should only withdraw about 4% of your nest egg to live on per year, Sitar says. “But even that has come into question lately in the low interest rate environment that we are in,” he added.
The best retirement solution is to be extremely careful with your retirement planning. Set goals for what you want to do, and budget accordingly. It can be OK to spend more when you retire, just make sure that you put that into your retirement plan.
Some retirement calculators let you set different spending levels for different times during retirement. This is a great way to see if you can afford the splurge or not.
6. Being too cautious about spending money
On the flip side, there are retirees who are afraid to spend money because they want to leave a certain amount to their kids or grandkids, Sitar says.
If a retiree is truly concerned about this, they should meet with a certified financial planner to determine how much they are going to conservatively need.
If there is enough, the retirees can fund a life insurance policy, Sitar says. “That way, the retirees can spend to their heart’s desire knowing that the life insurance money will pass to the designated beneficiaries,” he explains.
7. Creating a retirement plan and not maintaining it
Retirement planning is a process. Too many retirees meet with a financial adviser or use an online retirement calculator and think that their job is done.
The problem is that things change. There are external factors that impact your finances (stock markets, real estate prices, inflation, etc.) and internal factors (your health, family, goals, etc.). Any detail can have a big impact on your personal retirement plan.
Revisit and update your plan every three to six months.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.