Baby boomers, or those who were born from 1946 to 1964, are retiring. And speaking of retirement, 2024 will be a big year for the United States. About 4.1 million Americans are turning 65 this year, and every year until 2027. As these people start embracing what’s supposed to be their “golden years,” there are baby boomer retirement mistakes that they must have to avoid.
These common retirement errors touch on a lot of important matters, including savings gaps and healthcare uncertainties. If you or someone you know is retiring soon, here’s a read for you We’ll explore critical errors and give practical advice on how to avoid retirement mistakes.
1. Underestimating the Cost of Healthcare
Health is wealth. You’ve probably heard this a thousand times over, but it becomes even more relevant when your retirement age is fast approaching. In the US, the life expectancy for males is around 74.8 years. Females tend to live longer, with a life expectancy of 80.2 years. But whatever the number is, living longer means facing increased healthcare expenses. Long-term care (LTC), for instance, is a major cost that many Americans are not prepared for. In 2023, LTC costs ranged from $64,200 annually for a private room in assisted living to $116,800 for a private room in a nursing home. Such figures underscore how failing to prepare for healthcare could be one of the biggest baby boomer retirement mistakes.
Note that Medicare doesn’t cover LTC services. This is why, to avoid one of the biggest retirement planning mistakes, you must look for supplemental health insurance policies that provide coverage for your long-term healthcare needs. Additionally, you must save up for a realistic healthcare budget to cover out-of-pocket expenses.
2. Not saving enough (or at all) and Overspending
Apart from retirement healthcare mistakes, baby boomers also tend not to save enough (or not save at all). According to a study, 3 out of 4 baby boomers wish they had saved more or started saving earlier. But it goes more than just saving enough. Upon retirement, people also tend to deplete their accounts due to unexpected expenses or a lack of financial planning. You can avoid these retirement savings mistakes by establishing clear financial goals and planning for major expenses ahead of time.
Now, this issue of undersaving becomes more problematic when paired with baby boomer retirement mistakes of overspending. We’re talking about spending big on retirement homes, local and global travels, and hobbies. To avoid this, the general rule of thumb is to withdraw no more than 4% of your retirement savings annually.
3. Not Reallocating Your Investments (One of the Often-Ignored Baby Boomer Retirement Mistakes)
Saving is one thing. Investing is another. However, the reality is most baby boomers focus on building their savings and overlook how important it is to adjust their investment portfolio as they reach their retirement age. When it comes to retirement income planning, rebalancing portfolios is key. But what does this mean?
Research shows that about 37% of boomers have more equity than they should. Assets like small-cap stocks and mutual funds are high-risk investments, as they’re susceptible to market fluctuations. You must learn to shift to more stable ones, like government bonds or dividend-paying stocks by large companies. This is to help preserve your capital while still enjoying some form of passive income.
Leaving your portfolio like it was when you were younger is one of the commonly ignored retirement investing mistakes. But this need not be the case. Seeking advice from a professional can also go a long way, as they will help you craft a reallocation plan that matches your needs and risk appetite.
4. Getting Social Security Benefits Too Early
The question of when to take social security is one of the most important retirees often ask. As early as age 62, you can already claim benefits. But here’s the catch: It will result in permanently reduced benefits. If you claim early, the Social Security Administration will reduce your benefits by 5/9 of 1 percent for each month before your full retirement age (FRA), up to 36 months. For months beyond 36, the reduction is 5/12 of 1 percent per month.
For example, if your FRA is 67 and you claim at 62, your benefit will be reduced by about 30%. This means that if your full benefit at age 67 would have been $1,000 per month, claiming at 62 would reduce this to around $700 per month.
As retirement advice for baby boomers, it’s often wise to consider delaying Social Security benefits. Because that will make you eligible for delayed retirement credits (The rate of which will depend on your year of birth). Baby boomers fall under the 1943 or later category, which lets you enjoy an 8% annual increase in benefits. This incentive stops once you reach age 70.
5. Failing to Make a Proper Estate Plan
Neglecting estate planning is one of the frequent baby boomer retirement mistakes people make. According to research, there has been a 6% decrease in estate planning. This means that more and more people are missing out on the benefits only a comprehensive estate plan can give. These include ensuring the right people get your assets and minimizing potential tax burdens.
If you don’t want this to be one of your biggest retirement regrets, it isn’t too late to act now. Set up a will (a document that ensures your assets go to intended beneficiaries) or a trust (a document that provides additional legal protections and control over asset distribution). You must also designate trusted individuals to make financial and medical decisions on your behalf.
Doing all these can protect you and your family if you cannot make decisions yourself, making it one of the most important legacies you’ll leave.
Avoid These Common Retirement Pitfalls and Enjoy Golden Years
Baby boomers are retiring. And retirement should be a time to reap the rewards of your years of hard work. Don’t let baby boomer retirement mistakes take away the joy of your golden years. From planning for healthcare costs and implementing retirement withdrawal strategies to saving and protecting your legacy with proper estate planning, there are things you can do to truly enjoy the kind of retirement you deserve.