Retirement Planning: Common Mistakes that can Derail your Golden Years
Retirement is a time when people look forward to relaxing and enjoying the fruits of their labor after years of hard work. However, even the best-laid plans can be upended by mistakes that people make regarding their retirement. Here are nine mistakes to steer clear of, if possible.
- No Strategy: The biggest mistake is having no strategy at all. Without a plan, you may have no goals, leaving you no way to know how you’ll get there. A retirement strategy should include how much money you need to save, how you will save it and how you will manage your retirement income. A well-thought-out retirement strategy can help you avoid financial mistakes and ensure you have enough money to live on in your retirement years.
- Not Saving Enough: Another significant mistake people make is not saving enough for retirement. People tend to underestimate the amount of money they will need in their retirement years. It is essential to start saving for retirement as early as possible and to save regularly. Even small amounts saved regularly can add up over time.
- Starting Too Late: The earlier you start saving, the more time you have to accumulate savings and allow compound interest to work in your favor. Waiting until later in life to start saving can make it more challenging to reach your retirement goals.
- Frequent Trading: Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is adequately diversified to reflect your objectives, risk tolerance and time horizon. Then make adjustments based on changes in your situation, not due to market ups and downs. A diversified portfolio will include a mix of stocks, bonds and other investments that can help to minimize risk.
- Not Maximizing Tax-Deferred Savings: Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you pass up free money as employer-matching contributions.
- Overlooking Healthcare Costs: Healthcare costs are a significant expense in retirement, and many people underestimate how much they will need to pay for medical care. Failing to plan for healthcare costs can deplete retirement savings quickly, leaving you with little money for other expenses. It is essential to factor in healthcare costs when planning for retirement.
- Not Adjusting your Investment Approach Before Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation before tapping your savings so you’re not selling stocks when prices are depressed.
- Retiring with Too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
- Underestimating Life Expectancy: People are living longer than ever, and planning for a longer retirement is essential. Underestimating life expectancy can lead to running out of money in retirement. Planning for a retirement that could last 30 years or more is important.
In conclusion, retirement planning is critical, and avoiding these common mistakes can help ensure that your retirement years are enjoyable and financially secure. Contact an Adams Brown advisor to discuss your retirement goals.