When it comes to retirement planning, there's a lot to think about -- and the stakes are high. While it can feel overwhelming, one good place to start is to make sure you're avoiding common and costly errors that could derail your retirement.
Here are three of those errors you want to make sure you don't make.
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1. Failing to make a plan for long-term care
Failing to plan for long-term care costs is one of the most serious errors retirees can make. As many as 7 in 10 people who survive to 65 need some kind of long-term care during their lifetime. Costs can top $100,000 per year for this care.
There are different approaches you could take to long-term care planning, from working with an estate planning attorney, to making a Medicaid plan, to buying long-term care insurance, to saving in a dedicated fund. The right approach will depend on your age and finances, but you must put some plan in place because Medicare will not cover it, and you don't want to drain your retirement accounts.
2. Not taking your required minimum distributions
Failing to take RMDs is another major error you can't afford to make. RMDs are required for the following accounts:
- Traditional IRA
- SEP IRA
- SIMPLE IRA
- Rollover IRAs
- 401(k)
- 403(b)
- 457(b)
You must take your first RMDs from these retirement accounts by April 1 of the year after you turn 73. However, under the Secure Act 2.0, the RMD age will increase to 75 in 2033.
Once you are required to take RMDs, you need to take them by Dec. 31 each year going forward to avoid substantial IRS penalties of 25% (or 10% for IRA owners who correct the mistake in a timely manner). Be sure you take these distributions from your accounts on schedule.
3. Choosing the wrong Medicare coverage
Finally, choosing the wrong Medicare coverage is another error you can't afford to make. Most retirees either combine traditional Medicare coverage with a Medigap plan to pay for coinsurance costs or opt for Medicare Advantage Plans, which can provide broader coverage.
You will need to research the coverage available under each of these different options, understand what is (and isn't) included, and make sure that you sign up for a plan that meets your family's medical needs.
Healthcare is one of the most significant expenses that seniors face, and having the wrong coverage could mean you end up draining your retirement plans far too quickly to pay for medical services.
Fortunately, avoiding these mistakes doesn't have to be difficult if you're prepared for them and put the right plans in place as early as possible during your retirement years.
