“The Millionaire’s Blueprint: 6 Surprising Retirement Slip-Ups to Avoid to Secure Your Future”
6 Retirement Mistakes that Successful American Millionaires Tend to Avoid
If you want to make the most of your later years, you may also want to avoid these pitfalls. A 2024 Gallup poll found that 74% of retired Americans have enough money to live comfortably, and you don’t need to be a millionaire to get on that boat.
But it doesn’t hurt to emulate the financial behavior of millionaire retirees. Here are some major mistakes that people in this category tend to avoid.
Retirees are often warned to make more stable investments and reduce exposure to the stock market. This is good advice, but only up to a point. Savvy investors preparing for retirement know better than to sell their stocks entirely. Doing so means limiting the growth of their portfolio.
A better option is to maintain an age-appropriate mix of safer assets, such as bonds, plus stocks and ETFs (exchange-traded funds) that have the potential to deliver stronger returns. In the equity world, though, it’s a good idea to focus on income-producing assets like dividend stocks and REITs (real estate investment trusts), which can also serve as a hedge against market volatility.
Fidelity estimates that today’s average 65-year-old will have $165,000 in medical expenses in retirement. The reality is that your medical bills depend largely on how well you take care of yourself, but also on factors outside of your control. But it’s important to allocate funds for health care expenses so you don’t get stuck in any way.
One thing millionaires often do in their retirement planning is combine dedicated funds for health care with a health savings account. These accounts offer the benefit of tax-free withdrawals for medical expenses, which can help wealthy retirees limit their IRS bills.
Wealthy Americans also know how to plan for long-term care. Nationally, the average cost of a semi-private nursing home room is $104,000 per year, Genworth said. Purchasing long-term care insurance before retirement can help alleviate some of the burden. Locking in premiums in your 50s, rather than waiting until your 60s, may result in more affordable coverage.
It’s natural for people to want to spend their retirement years in a comfortable home with ample amenities. But keeping a larger property in retirement can create problems, even if the home is paid off. Redfin reports that property taxes nationwide have increased nearly 30% over the past five years. If you no longer need as much space as you once did, consider downsizing. It allows you to reduce some of your housing costs, including insurance and maintenance.
Cars are one of those assets that don’t appreciate in value over time. Millionaires know not to waste their money on expensive luxury cars, and you may want to limit your spending on cars, too. Keep in mind that the more expensive your vehicle is, the higher the insurance and maintenance costs are likely to be. If you have the nicest car on the block, you may be more likely to be a target for theft.
It’s one thing to support your children logistically and emotionally once they grow up. However, providing financial support that could hamper your retirement plans is another matter. Savings.com found that 47% of people with adult children provide some level of financial support. Those interviewed received an average of nearly $1,400 in total monthly support. You may need to take a different approach to avoid shorting your savings.
If you have retirement funds in a traditional savings plan, starting at age 73, you will be required to take required minimum distributions (RMDs). The importance is to avoid such a fate. (Note that if corrected quickly, the RMD penalty can be reduced to 10%). But millionaires also know how to minimize the possible tax impact of RMDs, and you can do this by donating RMDs to a qualified charitable organization.
You should also know that there is no requirement to spend your RMD. You can’t put the money back into a tax-advantaged retirement account, but you can invest it in a taxable brokerage account and use it to open a CD (certificate of deposit) or find other ways to use it to generate consistent returns.
FAQ:
Q: What is the average medical expense for a 65-year-old in retirement?
A: According to Fidelity, the average 65-year-old in retirement will have $165,000 in medical expenses.
Q: How can I minimize the tax impact of RMDs?
A: You can donate RMDs to a qualified charitable organization to minimize the tax impact.
Q: Do I have to spend my RMD?
A: No, you do not have to spend your RMD. You can invest it in a taxable brokerage account and use it to generate consistent returns.
Conclusion:
Retirement planning is crucial to ensure a comfortable and enjoyable post-work life. By avoiding common mistakes and adopting the financial habits of successful American millionaires, you can set yourself up for success in retirement. Remember to maintain a balanced investment portfolio, plan for medical expenses, and consider long-term care insurance. Additionally, avoid overspending on cars, support your children financially responsibly, and minimize the tax impact of RMDs. By taking these steps, you can enjoy a secure and fulfilling retirement.
