Retirement, Save Your MoneyMarch 29, 2021April 26, 2021

6 Retirement Mistakes You Must Not Make In 2021 To Avoid Financial Blunders

Are you ready for the next chapter of your life? Are you all set to retire within a few years and enjoy the next phase of your life with your loved ones? Well, it is natural to feel excited, and I wish you all the best. However, there is one thing that I must tell you before you begin your next journey. Wrong retirement planning can put several obstacles in your journey and make it hard to reach your final destination. It could make your retirement life miserable and painful instead of a happy one. With that perspective in mind, let us discuss a few retirement mistakes you must not commit in 2021.

Retirement mistakes you must not make in 2021

Health and wealth are your biggest assets. You need to preserve it to the best of your ability. Wrong retirement plans can deplete your wealth after you quit your job. Here are a few retirement planning mistakes that you must avoid in 2021.

Ignoring the tax implications:

Many seniors are not aware of the fact that several income sources are taxable. That includes retirement plan withdrawals, pension, and Social Security benefits in some cases. Here you need to understand one thing. You do not need to pay tax at the time of withdrawals from Roth accounts. The IRS will impose a tax on Social Security benefits depending on the total income.

Overlooking tax consequences could derail your budget and lead to a financial crisis. Hence, it makes sense to calculate your taxes at the time of withdrawing money from retirement savings accounts. Can you afford to pay that amount of tax? It is better to have a practical idea before you get into any trouble.

Not creating a budget for your retirement life:

Life changes after retirement. You are no longer doing a full-time job. You have limited income sources like Social Security, retirement plan withdrawals, and pensions. You have to manage your entire expenses with that amount.

Before retirement, you are accustomed to a certain kind of lifestyle. You have multiple sources of income. However, after you retire, the scenario changes completely. You are not doing a 9-5 job. If you have health issues, then you cannot even do a part-time job. So, you have a limited income.

Furthermore, you have to consider something else. It is easy to maintain a certain lifestyle when you have multiple sources of income. However, it is quite tough to maintain the same standard of living with a fixed income. Plus, you have to take your medical expenses into account. If you are above 60 years, you are likely to have health issues and medical expenses. As it is, the medical cost in the country is expensive. Unless you have adequate health insurance coverage, it is tough to cover your medical expenses. The premium that you have to pay to get sufficient coverage is quite high. You have to pay that amount every year no matter how much it is.

If you think rationally, you will understand two things. First, you have to calculate your expenses for maintaining a decent lifestyle post-retirement. Secondly, you have to create a budget that takes into account recurring and emergency expenses at the same time. You have to include annual insurance premiums, property taxes, debt payments, and so on.

You have to create a budget now to save money for your retirement life. A budget can show the areas where you can save money. But before you develop a budget plan, make sure you calculate how much you need to spend every month post-retirement. For instance, if your current monthly expenses are $4000, then estimate your monthly expenses after retirement. Do you think that $4000 is enough for maintaining a standard lifestyle? Do you need more? If so, then you have to formulate a budget plan that helps you to save a substantial amount and contribute more toward the retirement savings plan.

Instead of taking proactive steps to boost your retirement income:

Job loss, pay cut, and hour cut created a lot of financial stress in 2020. It might have happened that you couldn’t contribute to your retirement savings accounts. But this year is different. The situation is changing gradually. Try to contribute towards your retirement savings account this year. You have already lost one year. That means you have lost the opportunity to save money for a year. Make plans to use this year to build your nest-egg. Contribute whatever you can to your retirement savings plan. Otherwise, you would lose both time and money in the long run.

Many had taken out money from their retirement savings plans in 2020. The government had given them the option to withdraw money without any penalty in the last year. If you have taken advantage of this opportunity and made penalty-free withdrawals from your retirement savings plans, then you are under bigger financial pressure this year.

Ideally, one should not make an early withdrawal from retirement savings accounts. If you have been compelled to withdraw money from your retirement savings account in 2020 due to the pandemic, then the damage is already done. The only way to recover from it is to contribute more than what you usually do every year. For instance, if you usually contribute $300 every month and you have taken out $2400 from your retirement savings plans, then you should deposit $500 every month.

Breakdown

Your usual contribution – $300 every month

You have taken out – $2400

If you divide the amount into 12 months, then you have to pay $200 per month.

$2400/12 = $200

So your revised monthly contribution should be – $300 + $200 = $500.

Not exploring Social Security benefits up to the optimum level

Social Security benefits can help boost your retirement income. Like most Americans, if you have not contributed toward your retirement savings account in the last year, then you should use this year to boost your retirement income with a few social security tricks. Update yourself about the changes in the Social Security laws so that you can get the maximum benefits. Believe me, an easy trick can help you to get $17,166 more money every year.

The best part is that when you know how to get maximum monetary benefits from Social Security, it helps you to retire without any worries.

Not taking steps to pay off your debts

If you have accumulated debts in the past few years, try to pay them off as soon as possible. Unpaid debts, whether secured or unsecured, put financial pressure on your shoulder. The compounding interest on debts increases your financial burden and leaves you with a meager amount for your retirement contributions.

If you have unsecured debts like credit cards, you can explore debt consolidation options to arrange an unaffordable repayment plan and pay back your creditors.

Learn the importance of debt consolidation before consolidating your unsecured bills. Understand the pros and cons of each debt consolidation option. Evaluate your financial situation and determine which option will be best for you.

The sooner you pay off your debts, the sooner you get relief from your financial obligations. You can contribute a substantial amount to your retirement savings plans. This will help you build your nest-egg.

Not taking advantage of HELOC when you qualify for it

Most people depend on their retirement plans for income after leaving their jobs. However, we need to remember one fact. Pandemic has created an uncertain economic situation in the country. Nobody can assure that there won’t be any financial crisis in the next few years. While you may have some safe investments in your portfolio, it won’t hurt to arrange a backup income source. That would reduce your dependency on your traditional retirement savings plans.

A HELOC or home equity line of credit is a good option for you.

The best part of a HELOC is that you do not have to take out money right now. Here, you secure a line of credit from where you can withdraw money as per your financial needs within 5 to 10 years.

If you do not have a home or enough equity in your home, you will not be eligible for a HELOC. This is not an option for you. However, if you own a home with enough equity, HELOC is a feasible option for you.

Conclusion

A few wrong money moves can turn your retirement life into a miserable and stressful one. Retirement planning mistakes can tarnish the golden period of your life. If you want to secure your money and mental peace, avoid the six retirement planning mistakes we discussed today.

Linda Richardson

Linda Richardson is a New Jersey-based financial content writer and enduring learner with an ongoing interest to learn new things.
She uses that curiosity, connected with her knowledge as a financial writer, to write about subjects valuable to small businesses.