So you've got retirement in your crosshairs and even bought a five-year calendar so you can countdown the days left in your work life. You think the end can't come soon enough; what could possibly go wrong, you wonder. Plenty. Here are five mistakes people make just before they retire:
1. They stop saving for retirement.
When you get close to retirement one of two things happens with your relationship with money: You either figure you have enough money saved or you figure you'll never have enough saved. Yes, for most of us, it's the latter.
When you think saving for retirement is futile and won't make a difference anyway, the tendency is to stop doing it. Retirement experts say this is bad thinking. Every dollar matters.
The National Institute on Retirement Security says that the average household headed by someone nearing retirement age has a median of $14,500 in savings. This includes the 45 percent in that age bracket who have no retirement assets at all. Among those 55 to 64 with retirement accounts, the median balance was $104,000 as of 2013 which, while better than nothing, is still likely way short of where they want to be.
People who stop saving figure they can't make up for the decades when they should have been setting aside small amounts and watching them grow through the wonders of compounding.
People who are even just a year away from retirement should be saving as much as possible and not stop. They should be availing themselves of company-matched 401Ks and self-funded IRAs. If you are 50 or older, here's how much you can contribute a year.
2. They invest like they are 35 -- not 60.
Prudent investment philosophy goes something like this: When you are younger, you can withstand higher risk investments. The logic is that: should what you invest in tank, you still have time -- many more work years -- left to recoup what you lost. But as you get closer to retirement, your goal is to preserve what you have. You don't want your principal investment to shrink because you have less time left to recover.
Older workers need to revisit their investments at least once a year. They need to actually know how much they are paying in fees. Remember, this is the money that is expected to carry you for the rest of your life. How is it you know when the next season of Orange is the New Black is on but you don't have the remotest idea of what funds and stocks your money is in?
3. They believe that retirement means never having to work again.
Oh, such silly gooses! With the exception of the 1 percent, most of us will need to make some spending adjustments in retirement and some will simply get bored in retirement and once again seek paid employment.
According to a 2013 MetLife survey of the oldest baby boomers (those born in 1946), just 52 percent are fully retired; 21 percent still work full-time and 12 percent are retired but work part-time or seasonally. Very few (2 percent) of the oldest boomers are employed part-time.
For what it's worth, while you certainly may be able to pick up some money post-retirement, it won't likely come anywhere close to what your current paycheck is. And the years immediately following your retirement farewell lunch are the ones during which you have the greatest earning capacity. Just a few years out of the workplace will likely render your skills set out-of-date.
It's something to think about: If you are able to stay in your current full-time job another year or so, does it make financial sense to do so? Once you are past 66, Social Security no longer penalizes you for working while you collect benefits.
4. They don't refinance their house while they can still qualify for a loan.
If your retirement plan involves lowering your mortgage by refinancing it or buying a house somewhere else, you should do it while you are still employed. Mortgage lenders have tightened the regulations since the housing market crash and the recession, and for the most part, you are going to need to show proof of income to qualify for a loan -- even a small loan.
Once you leave your job, all bets are off in the bank's eyes. Some may lend you money provided you are putting down 80 percent and borrowing just a small amount. But if you want to know with certainty that your retirement plan to buy a house in Florida is going to work out, do it before you leave your job.
Even if a move isn't in your immediate plans, at least make sure you have the lowest, most-competitive loan rate available. Many people are locked in at higher rates and just never bothered to refinance. Refinancing could save you hundreds of dollars a month and should be done before the rates go up. If you think you are only going to live in this house a few more years, dare we suggest looking at an adjustable rate loan?
5. They ignore health care costs because they are healthy right now.
Health care costs are what's likely to gobble up your retirement savings. Fidelity says that a 65-year-old couple retiring now can expect to have, on average, $245,000 in out-of-pocket medical expenses throughout their retirement. But there is a big disconnect between that staggering amount and how much pre-retirees think they will need. Nearly half the respondents (48 percent) in the same Fidelity study said $50,000.
While long-term care insurance policies don't get resounding accolades -- they are too expensive, premiums can rise right when you need them, they help but don't cover everything -- they are something to investigate. More practically, it's also worthwhile having a conversation with adult children and close friends about what would happen should you need assistance. Better to have a plan than pretend it can't happen.
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