Most Americans recognize the importance of having a smart strategy for saving and investing for retirement during their working years, but many people make mistakes along the way.
Personal finance media personality Suze Orman now illuminates one huge miscalculation retired Social Security recipients are increasingly making that hurts their financial well-being.
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One common retirement savings predicament people find themselves in involves starting late. The more time they allow for their investments to increase in value, the more they will be worth when they retire.
Others often underestimate their retirement expenses, assuming incorrectly that Social Security benefits will provide them with enough financial security to live comfortably.
Related: Suze Orman has blunt words on your 401(k), Roth IRA in retirement
Workers who can invest in an employer-sponsored 401(k) plan sometimes fail to do so. One of the simplest ways to accumulate free money is to contribute enough to a 401(k) to get the full match at whatever percentage the employer has it set.
Investing in a traditional Individual Retirement Account (IRA) is also a good retirement savings strategy. Neglecting to do so causes one to miss out on growth over time and important tax benefits.
Another frequent misstep is not understanding how much to spend on health care in retirement. Medicare does not cover all health expenses, and coverage varies depending on which one a retiree chooses.
Long-term care insurance, for example, is often the largest retirement health care expense, and it's not always covered by Medicare. If necessary, it's vital to have that insurance covered separately.
But Suze Orman focuses her attention on one alarming personal finance mistake retirees are making at a dangerously increasing pace.
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Suze Orman cautions Social Security recipients about credit card debt
As mentioned above, Social Security alone is not enough for people to live comfortably on in their retirement years. But even for those with additional retirement savings, a fulfilling lifestyle is even more difficult to achieve for seniors with debt — especially credit card debt.
Orman explained that she was frustrated to find out that among retirees with debt, the number of those with credit card debt in particular has begun to increase significantly from previous years.
That figure is up to two-thirds of seniors with debt.
"To be paying interest of more than 20% on unpaid credit card balances in retirement seems especially hard," Orman wrote. "When your goal is to live comfortably off of fixed-income sources — savings, Social Security, and perhaps a pension — having such expensive debt can be a heavy burden."
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Orman recommends one strategy retirees struggling with credit card debt can use to help them cut spending in order to more quickly pay off their cards.
Related: Suze Orman has blunt words on Social Security for retired Americans
Orman encourages focusing on spending needs vs. wants
The personal finance coach explained a strategy to help determine which of a person's expenses are needs and which are wants.
First, people should look carefully at their credit card bills and their checking account statements. Then they should go through them line by line and label each as a need or a want.
Then, Orman recommends, people can add up the costs of the wants by week or by month. And the next step is to see if they can eliminate the wants, or at least cut them by 50%.
"The goal, of course, is to reduce your spending so you have more money to put toward paying down your expensive credit card balance," Orman wrote.
It's also important to consider whether some lifestyle choices can change. For example, if a couple currently owns two cars, they could consider whether one car might be sufficient now that they are no longer working.
Selling the extra car and saving on gas, insurance and maintenance for it could go a long way toward paying off the credit card debt.
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