Retirement Mistakes to Avoid
Everyone makes mistakes, and when it comes to our finances, it’s easy to mess up if we don’t know what to look for. Here are six retirement planning mistakes you should be aware of.
Not saving enough
This is, of course, the biggie. Saving for retirement should be a commitment before retirement is even a twinkle in your eye, but it doesn’t always happen that way. One study found that on average, people think there’s a 45% chance that they will outlive their savings.
How to avoid it: Save early and often, and if you haven’t done that, make sure you’re maximizing your contributions to your 401(k) plan and employer matches. Take advantage of catch-up contributions once you turn 50 and leverage other retirement accounts, as well, by contributing as much as you possibly can.
DIY planning for retirement
We all have some level of bias when it comes to our own money. Even if you’re financially savvy, relying solely on your own knowledge and expertise can put your retirement at risk. It can also mean you pay more in taxes and miss out on opportunities to optimize your hard-earned funds.
How to avoid it: As wealth advisors, optimizing wealth for current and future financial success is what we live and breathe. Talk to a wealth advisor to help you set up your financial plan in accordance with your goals. You may find that having an outside resource is invaluable.
Not taking Social Security benefits at the right time
Even if you can start taking Social Security at age 62, that doesn’t mean you should. In fact, beginning to claim that early reduces your monthly check by 30% for the rest of your life. Age 67 (for anyone born after 1959) is when you can start receiving 100% of your benefit amount.
How to avoid it: Use your portfolio for retirement income until age 70, because you get an 8% boost in Social Security benefits each year between ages 67 and 70. Talk to your financial advisor about which claiming strategies are best for you, because it will depend on everything from your marital status to how long you plan to work.
Not planning for long-term care
When planning for retirement, we often dream about the fun and exciting things we’ll finally get to do: Travel, spend time with family and friends, or improve our golf game (to name a few). But many retirees fail to account for the rising and unpredictable costs of health care in their planning, and especially for their long-term care needs.
How to avoid it: Fortify your savings for medical needs with a health savings account (HSA), and be sure to make additional catch-up contributions to that account if you’re older than 55. Consider long-term care insurance to help shoulder the burden of nursing home costs.
Being too conservative in your investments
It’s true that as your time horizon compresses, it can be a good idea to shift to a more conservative investment mix. However, avoiding the stock market altogether because you think it’s too risky introduces you to a new risk: that of not keeping up with inflation because the returns on your “safe” investments are too low.
How to avoid it: Work with your wealth advisor to determine the ideal asset allocation for your risk tolerance. You may need your retirement funds to keep growing in order to sustain a retirement that could last 30 years or more, so consider low-cost mutual funds and exchange traded funds, which allow you to own pieces of companies while still reducing your exposure to stocks.
Spending too much money on your kids
We all love our kids and want them to have the things we didn’t have. But don’t spend excessively on a wedding, fund their business, or help them buy their first house if it puts your own future financial security at risk.
How to avoid it: Set a budget for the big-ticket spending you want or need to do for your kids and prepare them accordingly. Find smart ways to save on wedding costs or tuition. Whatever you do, don’t borrow from your retirement fund to pay for stuff for your kids.
Being spontaneous about a move
Many empty nesters decide to build a new, permanent nest in an entirely different location before they’ve even checked it out, only to regret the move. Moving is expensive, and you can’t recoup the costs, so make sure you know exactly what you want and what you’re getting yourself into before you go. You could also be setting yourself up for unexpected costs associated with your new home in the form of taxes and higher costs of living.
How to avoid it: Rent a place in your desired location for a few months to test it out, and research taxes and other costs of living before committing completely.
Would you like some professional help to make sure you’re avoiding mistakes and on track for a comfortable retirement? Set up an appointment with a wealth advisor to get started today.