If you’re planning to retire in the coming year, you may be very excited to begin a new stage of your life. However, the wrong decisions could turn an otherwise happy period into a miserable one. Here are a few big retirement mistakes which you should avoid in 2021.
The first mistake: Not planning for taxes
Many people don’t know that several key income sources are subject to taxes. Among them are pensions (but not always), traditional retirement plan withdrawals (however, withdrawals from a Roth account are exemptions), and even Social Security benefits (depending on your total income). Forgetting about taxes could create a real financial crunch and upend your budget. So, it’s better to figure out what your tax burden looks like at the beginning. If you’re taking substantial withdrawals from a retirement plan, you should prepare to make estimated tax payments to the IRS on a quarterly basis.
The second mistake: Not going in with a budget
After retainment, you may start living on a combination of income sources, such as Social Security, retirement plan withdrawals, and even a pension. However, your options for getting additional income may be limited. Especially if you have health issues that prevent you from taking a part-time job. That’s why it’s important to have a well-thought-out budget. It must account for your recurring expenses as well as sporadic ones.
The third mistake: Not securing a HELOC if you can get one
Some people have to rely heavily on their retirement plan to provide income once they’re no longer working. Ideally, you may have enough of your portfolio in safer investments so that the market unpredictability won’t be an issue. However, it would be better to secure a backup income source as it gives you the option to leave your IRA alone completely. In that regard, HELOC or a home equity line of credit is a good bet.
You don’t borrow money outright with a HELOC. Instead, you just secure a line of credit you can draw from as needed, usually within a five- to 10-year period. But if you don’t own a home, then a HELOC won’t be an option.
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