Your retirement years can be spent focusing on your family and friends, traveling to places you’ve always wanted to go with your partner, and continuing the hobbies you love at home. Unfortunately, a few wrong choices can significantly impact your wealth. Learn more about how to steer clear of common retirement mistakes from Park Place Financial.
1. Missing the Medicare Enrollment Window
Healthcare can make up a large portion of the expenses incurred throughout a lifetime, and it can become an even bigger investment during your golden years. One of the best ways to manage healthcare costs is by navigating Medicare regulations correctly. Generally, Medicare eligibility is available to individuals aged 65 and older. But the initial window to enroll in Medicare begins three months before the month of your 65th birthday and ends three months after. So if your birthday is in April, you have a seven-month window — from the beginning of January to the end of July — to sign up for Medicare. This is called the initial enrollment period, or IEP. There are four parts to Medicare plans:
- Part A: Hospital insurance
- Part B: Medical insurance
- Part C: Medicare Advantage
- Part D: Prescription drug coverage
When you don’t sign up for Medicare on time, you’ll pay a penalty on Medicare Part B premiums. This penalty is proportional to the number of years you were eligible for coverage but didn’t use it. And since Medicare Part B premiums are taken out of your Social Security benefits, you’ll receive a smaller monthly Social Security payment if you’re paying penalties.
If you’ve missed your IEP, you can still strive to sign up for Medicare as soon as possible. There is a General Enrollment Period each year from January 1 to March 31. And there’s an Open Enrollment Period from October 15 to December 7 each year, when individuals can join Medicare, drop a plan, or change their coverage. Part D benefits change each year, so the Open Enrollment Period is a good time to review your Part D plan and make changes if needed.
2. Concentrating Your Portfolio
As you prepare for retirement, you may think it’s prudent to adjust your portfolio so that you’re investing more in bonds and less in stocks. This sounds like it makes sense because stocks tend to be more volatile while bonds typically hold their value when stock prices fall.
While there’s merit for many people to take a more conservative investment approach later in life, it’s often not recommended to concentrate too much wealth in the bond market. Depending on your financial situation, it may still be important to keep a diversified portfolio to help protect against the inevitable ups and downs in the economy. And if you don’t retain any stocks, this could significantly deplete your nest egg during the early retirement years.
It’s wise to strategically adjust your investing strategy as you age in partnership with an adviser. A qualified financial planner can help you make sound investment decisions that will match your risk tolerance and provide financial security during your retirement years.
3. Collecting Social Security Too Early
Typically, you can start collecting Social Security once you reach age 62. Since you’ve probably paid into Social Security for many years, it’s understandable that you might want to take this benefit right away. But if you can, waiting a few years to collect Social Security can increase your monthly payment.
If you wait until full retirement age (FRA), you’ll be entitled to your full Social Security benefit. FRA is based on your birth year. If you were born after 1960, your FRA is 67. If you were born between 1943 and 1959, your FRA is somewhere between age 66 and 67. For each month that you file ahead of your FRA, your benefits will be reduced, and your spouse’s benefits will decrease, as well.
If you’re in relatively good health and have a solid financial position, you may want to consider delaying your benefits until after you reach FRA (but before you turn 70 years old). If you do so, you’ll be eligible for delayed retirement credits, which can increase your benefits between 5.5% and 8% annually. According to Forbes, claiming Social Security at age 70 instead of age 62 can increase your monthly benefit by 76%. And because Social Security benefits are adjusted upward in response to inflation, waiting for a larger monthly check means you’ll also enjoy a bigger cost-of-living adjustment.
Avoid Retirement Mistakes with Help from Park Place Financial
If you’re looking for an experienced financial advisor who can help you plan for the future and bypass common retirement errors, choose Park Place Financial. We offer retirement planning services to help clients optimize their guaranteed income sources while selecting smart investment strategies. For more information on the retirement mistakes to avoid, contact us today.