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What Is the Biggest Retirement Planning Mistake?

April 20, 2017 • By

Last Updated: April 20, 2017

Suze OrmanThat’s easy to answer: Not having a plan!

Building a financially secure retirement doesn’t happen by itself. You need to make a commitment to smart financial decisions long before retirement — starting in your 20s would have been ideal — and then keep carrying through on your retirement plan.

Here are some other big retirement-planning mistakes I want you to avoid:

  1. Not maximizing your Social Security retirement benefit. I strongly encourage you to wait until your Full Retirement Age (FRA) to start receiving your Social Security benefit. That’s between age 66 and age 67 depending on the year you were born. The payout will be 25 to 30 percent higher than what you are eligible for if you start at age 62, which is the earliest you can claim.  And ideally, if you are in good health and there is longevity in your family, I encourage you to devise a financial plan that allows you (or your spouse — whomever is the highest earner) to delay starting until age 70. Every year past your FRA through age 70 entitles you to a payout that will grow by a guaranteed eight percent. You can’t get eight percent guaranteed investing these days!
  2. Not saving on your own. Yes, Social Security will be an important source of income in retirement. But chances are it won’t cover all of your basic needs, to say nothing of a few wants. You don’t have a workplace retirement plan? Then, I want you to save up in a Roth IRA. If you are over 50 this year you can contribute $6,500. That’s $125 a week. Please take a hard look at all your spending and see if you can free up more money to build a strong retirement fund.
  3. Not accounting for medical costs in retirement. It’s so important to understand that Medicare doesn’t cover everything, and not many people have retirement health benefits from an old employer. On average, retirees end up needing to cover about 30 percent of their health care costs.
  4. Not Planning for a Very Long Life. There is a 50 percent chance a 65-year-old woman today will still be alive at age 88. And for a 65-year-old male there is a 50 percent chance he will still be alive at age 85. (Check out this free online life expectancy calculator.) Given the possibility of living a long time, you need to make sure your savings will last longer than you! One smart way to stretch your savings is to keep working in your 60s, even if it is part-time work. Delaying your Social Security start date, and reducing your withdrawal needs from IRAs and other accounts in your 60s will provide you more income for what I hope is a wonderful and long retirement.

 

SSA does not endorse any particular financial advisory product or service.


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About the Author

Suze Orman is an award-winning personal finance expert.

Comments

  1. VICTORIA

    I AM 67 OLD AND WORK FULL TIME. CAN I RECEIVE FULL S.S. BENIFIT PAYMENTS AND CONTINUE TO WORK 35 HOURS A WEEK WITHOUT PENALTY? ARE THERE ANY SALARY LIMITATIONS.?? SALARY OVER $50.00

  2. Walter B.

    I’m 63, I want to quit my job and not work anymore. And wait about 30 months to start my SS benefits at 66
    If I take SS now I get approx. $1536 a month. At 66 and 0 months it is $1872 a month.
    My question is: To get the Full Retirement amount, do I still have to work until I’m 66? Or can I not work and I will still get the full retirement amount?
    Please advise, Thank You, Walter

    • Ray F.

      Thank you for your question, Walter. For retirement benefits, we use the individual’s highest 35 years of earnings to compute monthly benefit amount. You can start receiving retirement benefits as early as age 62, but if you decide to get benefits before your full retirement age, they will be reduced. The longer you delay your retirement benefits, the higher benefit amount you will receive.
      The best way to start planning for your future is by creating a my Social Security account online. With my Social Security, you can verify your earnings, get your Social Security Statement, and much more. Also, we have a variety of benefit-calculators to help you plan for the future. Hope this helps!

  3. Kathleen M.

    Dear Suzy:
    I have been a teacher for 15 years and do not pay into Social Security. Through most of these years (13) I also worked a job that paid into Social Security. I have 30 years now so I know the Windfall Act will not affect my Social Security benefits. However at age 66, I do not want to collect my Social Security, I want to wait until I’m 70. However, I do meet the requirements based on my birth date to still be able to collect 1/2 of my husbands. I have gotten 2 different answers from the Social Security office. One person says that the GPO will still apply and another says it won’t because I have 30 years in Social Security. I actually went to Social Security to find out and they said the GPO doesn’t apply only because I have the 30 years and perhaps the other person didn’t look up my recordt. Can you help? I want the correct answer. Thanks

    Kathleen McConnon

    • Ray F.

      Thank you for contacting us Kathleen. You’re right, the Windfall Elimination Provision (WEP) takes into consideration your (30 years) of substantial work. However, when it comes to the Government Pension Offset (GPO), there are other -specific- rules that won’t reduce your Social Security benefits as a spouse or widow. Please read the “When won’t my Social Security benefits be reduced?” section of our “Government Pension Offset” factsheet.
      We hope this information helps!

  4. Kathleen M.

    Dear Suzy:
    I have been a teacher for 15 years and do not pay into Social Security. Through most of these years (13) I also worked a job that paid into Social Security. I have 30 substantial earning years now, so I know the Windfall Act will not affect my Social Security benefits. However at age 66, I do not want to collect my Social Security, I want to wait until I’m 70. However, I do meet the requirements based on my birth date to still be able to collect 1/2 of my husbands Social Security at age 66. I have gotten 2 different answers from the Social Security office. One person says that the GPO will still apply and another says it won’t because I have 30 years in Social Security. I actually went to Social Security to find out and they said iThe GPO doesn’t apply only because I have the 30 years and perhaps the other person didn’t look up my records. Can you help? I want the correct answer. Thanks

    Kathleen McConnon

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  6. An A.

    I think “Free Thinker” should use a more accurate name such as “Russian Troll”.

  7. john c.

    I am 70.5 yrs, still working and started receiving my SS at age 67. I am healthy, energetic and am considering retirement at 75 yrs. Can I request to halt my SS until I decide to stop working?

    • Ray F.

      That’s great John! Remember that the benefit increase no longer applies when you reach age 70, even if you continue to delay taking benefits. In the other hand, if you work and are full retirement age or older, the amount you make at work will not affect your Social Security benefits, no matter how much you earn. Please read our publication “How Work Affects Your Benefits” for more information.

  8. Gene

    Is it not true that SS has never needed fed gov money. Actually, the Fed Gov borrowed from SS and isn’t that partly or the whole reason why they now are trying to hurt it. fed Gov can’t afford to put back into the SS system what it took out.

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