You Are Setting Yourself up for Retirement Disaster If You Do These 3 Things

A lot of people look forward to being able to retire. But it takes a lot of planning to pull off a successful transition into those post-working years. And the moves you make ahead of retirement may dictate whether your senior years are filled with struggles or not. With that in mind, you may be headed for a terrible retirement if you do these three things.

1. Expecting to Get Most of Your Income From Social Security

It’s pretty common for retirees to fall back on Social Security once they stop working. But if your game plan is to get most of your senior income from Social Security, you may end up with a serious financial shortfall on your hands.

If you earn an average salary, you can expect Social Security to take the place of about 40% of it. And that doesn’t even account for potential Social Security cuts.

Most retirees can’t get by on just 40% of their former income, though. Even if you’re willing to lead a frugal lifestyle, you may end up needing more like 70% to 80% of your former paycheck to cover all of your costs.

Rather than plan to get most of your retirement income from Social Security, set yourself up with additional income streams. That could be a combination of withdrawals from savings, investments, and even part-time work.

2. Investing Your Savings Too Conservatively

The more money you’re able to accumulate ahead of retirement, the more you should be able to withdraw each year from your IRA or 401(k). But if you invest your savings in conservative assets during your working years, your IRA or 401(k) may not generate very strong returns, leading to less money for you later on.

It’s appropriate to invest somewhat conservatively when retirement is right around the corner, or when you’re already retired and are dipping into your savings consistently for income. But when retirement is many years away, it pays to go heavy on stocks for the strong returns they’re known to produce.

If you don’t like the idea of having to pick stocks for your portfolio individually, you could instead load up on broad market ETFs. The key, however, is to generate decent enough returns to let your savings grow while you’re still working.

3. Assuming You Won’t Have to Spend Any Money on Healthcare Once You Enroll in Medicare

Many people wait until age 65 to retire so they can enroll in Medicare. But if you expect to not have to spend any money on healthcare expenses as a Medicare enrollee, you could end up in a tight spot financially.

Not only are there premiums associated with Medicare, but there are additional costs you might face that include deductibles, coinsurance, and copays. There are also a number of services that Medicare actually does not cover at all, like dental cleaning and eye exams.

It’s important to understand what Medicare costs and covers ahead of retirement so you know how much to save for healthcare. Better yet, if you have access to a health savings account during your working years, it pays to fund that account and reserve the money for retirement.

At that point, your health-related needs may be more substantial. And having funds to cover medical bills could take some of the pressure off of your savings and Social Security checks.

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