According to the Employee Benefit Research Institute’s latest Retirement Confidence Survey, two-thirds of workers are confident they have enough to live comfortably in retirement. The same number of workers surveyed are confident they are doing a good job saving for retirement and know how much they will need. But, only four in 10 workers have actually tried to calculate how much they need, which can be a costly mistake.
The difference in living a comfortable retirement is not only the things you do, but also the mistakes you avoid. While having a well-funded AT&T 401(k) account and pension are good reasons to be confident in the future, it helps to know how to sidestep potential financial pitfalls. Here are the biggest financial mistakes AT&T employees should be aware of when preparing for retirement.
Not saving to the very end
Ideally, you should save 10-15% of your paycheck in your AT&T 401(k) account. If you’ve done so, great. But don’t congratulate yourself just yet. As you approach your desired retirement date, it’s no time to take your foot off the gas. Instead, you should consider saving even more. At age 50, you are eligible to make catch-up contributions, which allow you to save an additional amount in your retirement accounts each year. In your AT&T 401(k), you can save an additional $6,500, for a total of $26,000 (2020). Estimating your life expectancy and the longevity of your retirement isn’t an exact science. So, every extra dollar counts.
Blindly choosing a pension payout
Upon retirement, AT&T employees can elect to receive a monthly annuity or lump-sum pension payout. There are pros and cons to both. For example, with an annuity, you receive a regular paycheck for life, but there is no cost-of-living adjustment. Meanwhile, the lump sum gives you full control over your benefit to use however you want, but when invested your benefit is exposed to market risk.
The right choice for you depends on your personal circumstances. Since your pension will be one of your major sources of income in retirement, it is a decision you want to consider carefully.
Investing too conservatively
Conventional wisdom says you should invest more conservatively as you near retirement. That is, lower the amount of stocks in your portfolio to take some risk off the table. However, it’s possible to invest too cautiously.
Sure, you may not need the same level of growth in your portfolio. Yet, stocks, because of their higher growth potential, provide another important benefit to retirement investors: inflation protection. Assuming the historical rate of inflation of 3%, your money today could lose half its value in a little less than 25 years.
Forgetting to update your beneficiaries and estate plan
Here’s an unpleasant thought. It’s your last day at AT&T. Come closing time, you’re officially retired. But when you step out the door and walk toward your car, a distracted driver races through the parking lot and runs you over. What could make this situation worse (yes, it can get worse), is if you never updated your beneficiaries and/or estate plan. Now, the distribution of your assets may not happen as you wished, and your family may face the stressful hassle of probate court.
Though an extreme scenario, it illustrates an important fact: anything can happen at any time. Too often people make the mistake of designating beneficiaries on their accounts and insurance polices or drafting a will, then never looking at them again. Keeping your financial and legal documents up to date not only ensures your wishes are fulfilled but also mitigates any financial or legal burdens on your surviving loved ones.
Choosing the wrong age to take Social Security
Along with your AT&T pension, Social Security is one of your guaranteed sources of retirement income. And just like your pension, you should carefully consider how best to use it based on your personal needs.
Many financial articles say it’s better to delay Social Security until age 70, which is when you can maximize your benefit. But there are good reasons for some people to claim Social Security early at age 62, even though it results in a permanently reduced benefit. You may have health issues that make it unreasonable to wait, or you may not want to spend down your retirement savings to make up for the income shortfall until you reach age 70.
Ultimately, factors such as your other income sources, marital status and health should guide your decision, not just when you can get the biggest Social Security paycheck.
Retiring without a financial plan
To ensure you’re doing all the right things to live a comfortable retirement, get a financial plan that takes into consideration your assets, target retirement age, desired lifestyle and expected life span. It will detail how much to save and how to appropriately use your assets to create a sustainable income stream throughout retirement. Seek the help of a financial adviser to best make sure your plan is right for you.
Neglecting to consolidate retirement accounts
Over the course of your career, you may have retirement accounts other than your AT&T 401(k). Many AT&T employees can find it beneficial to consolidate their assets into one account, typically in an IRA. This lets you conveniently manage your assets all in one place and potentially lower your investment costs. If, however, your other retirement accounts offer suitable investment choices and low fees, then you may be better off keeping them.
Carrying bad debt
The Transamerica Center for Retirement Studies found that an alarming 40% of retirees cite “paying off debt” as a current financial priority, including credit cards, mortgage and other consumer debt.
Essentially, using debt to make purchases is borrowing from your future self with interest. Therefore, you should pay off as much debt as possible before you retire. If you don’t, you could have to pay off things from your past instead of finally living the dreams you’ve always had for your future.
Because most people retire in their 60s, make eliminating debt one of your top financial goals in your 50s, especially “bad debt,” such as high-interest credit cards. Before you retire, it’s equally important to simply avoid any new debt. Accumulating debt late in your career could put you at greater risk of having to work longer, if you can, or having to lower your standard of living in retirement.
Overlooking health care costs
Whereas many of your expenses decline once you retire, health care costs will generally rise as you age. A 65-year-old couple retiring in 2019 can expect to spend $285,000 on health care expenses in retirement, according to Fidelity’s Retiree Health Care Cost Estimate.
You may never need long-term care, but you’ll be better off if you prepare for it. Long-term care is very expensive, and Medicare doesn’t cover it. Consider that the national median annual cost of a semi-private room in a nursing home is $85,775, according to the Genworth Cost of Care Survey.
Prioritizing your children over retirement
According to a Merrill Lynch/Age Wave report, 79% of parents are helping their adult children in some financial way — whether it’s for their weddings, their cell phone bills or groceries. Parents are spending a combined $500 billion on their grown kids (ages 18 to 35) — double what they’re setting aside for their own retirement.
There’s nothing wrong with financially supporting your adult children, as long as you’re not putting your own financial security in jeopardy. Unfortunately, most parents are doing just that. Cutting off your children is difficult, but it’s generally the right move. Too much financial hand holding can create a terrible cycle. Neglect your retirement too much, then one day your children may be financially supporting you.