Retirees sometimes drastically underestimate life expectancy, fail to plan adequately for health care costs, invest too conservatively in the face of rising inflation, or stop working too soon, explains Rodney Brooks for USA TODAY. Additionally, retirees need to consider the impact of taxes on their retirement income, notes Emily Brandon for U.S. News & World Report.Continue Reading
Lack of planning is the biggest culprit for financial woes in retirement years, states Brooks. One survey suggests only 42 percent of Americans plan a budget for their retirement, which means many people retire without knowing what is ahead.
Moving to a state with favorable tax laws stretches retirement income, reports Brandon. Many retirees fail to consider the impact of sales tax and property tax on their retirement. The tax laws in some states are more lenient on retirement income than others. Income tax is also a potential issue for retirees who continue to work or have significant incomes.
Overspending is a serious risk for retirees who find themselves with more time on their hands to travel or engage in expensive leisure activities, according to Brooks. It is important to know how much is safe to spend without depleting retirement funds too early, particularly when many people stand a fair chance of living into their 90s. This extended life expectancy makes conservative investments such as bonds risky because of their low rate of return when weighed against inflation.Learn more about Financial Planning