Have you put much thought into your retirement? Unfortunately, most of us don’t. And, that could have serious repercussions if you want to actually enjoy your retirement years. Retirement mistakes are rapid.
The thing is, retirement involves more than just opening a savings account and forgetting all about it. You’re also going to have to make some sacrifices, keep monitoring it, and avoid costly mistakes. If you don’t do any of those, that could lose you millions of dollars.
1. Not Having a Retirement Plan
According to a FinanceBuzz survey released in January 2020, a “whopping 35 percent of respondents said that they have no retirement savings at all.” Moreover, data from Northwestern Mutual’s 2019 Planning & Progress Study found that 56 percent of Americans don’t know how much they’ll need to retire.Yikes. Both of those findings show that a lot of people are just asking for trouble down the road.
Whether you’re nervous about retirement or aren’t in the best shape financially, you need to plan for retirement as of yesterday. After all, the sooner you come up with a plan, the more quickly you’ll be able to resolve this problem. Not to mention you will make far less retirement mistakes. And, your future self will thank you since you’ll be able to actually enjoy your golden years.
- What does your lifestyle look like?
- Where will you live?
- How much will you spend on needs each month?
- Do you have enough set aside for healthcare costs?
- How much do you want left to enjoy leisure activities?
2. Taking Social Security too Early
For those who aren’t aware, you can begin receiving your Social Security retirement benefit as early as age 62. Or, you can wait until as late as age 70. But, for many, they’re tempted to collect this ASAP so that they can actually use it before it’s too late.Here’s the thing though, you’re probably better off waiting.
“According to the Social Security Administration (SSA), the average woman reaching the age of 65 today will live until 86.5. The average man who is 65 today can expect to live until 84,” writes Donna Freedman for MoneyTalkNews.
“One way to help ensure you don’t run out of money before then is to postpone claiming your Social Security retirement benefits,” adds Freedman.
- Claiming early reduces your benefit. In fact, for “every year you hold off past full retirement age, your benefit will jump by as much as 8 percent.”
- You might outlive your retirement income.
- Working longer can increase your benefit, as well as survivor benefits for your spouse.
- “A lower monthly benefit means that each cost-of-living adjustment (COLA), inflation-based increases to monthly benefit amounts, will result in less money than it would have if you had postponed claiming Social Security,” Freedman states.
- Taking Social Security too early means that you might get hit with a tax torpedo since this is considered a “combined income.” As such, 85 percent of your Social Security benefit could be taxed.
- If you enjoy and are able to keep working, even part-time, could cover your expenses until you reach ago 70 “at which point your Social Security benefit would be maximized,” explains Freeman.
3. Choosing The Wrong Retirement Plan
There was a time when people could rely on their employer’s pension plan and Social Security to fund their retirement. But, since those days are behind us, it’s up to you to determine the best retirement plan for you.Ideally, a retirement plan should not only build your nest egg by earning serious interest on your savings and offering tax benefits. Usually, that means optimizing your 401(k) or other workplace retirement plan by analyzing and rebalancing your investments and using robo-advisors.
4. Failing to Take Advantage of Your Employer’s Match
Nearly 20 percent of Americans aren’t contributing enough to their employee-sponsored 401(k) plans to earn the company match. In other words, they’re missing out on “free money.”“That’s your company literally saying: ‘Hey, here’s some free money, do you want to take it?’” financial expert Ramit Sethi tells CNBC Make It. “If you don’t take that, you’re making a huge mistake.”
“While it’s fair to think about your employer match as ‘free money,’ it’s better to view it as part of your total compensation package,” explains money reporter Anna Hecht. “If you contribute enough to earn the full match, you’ll get all of the money your employer owes you. That can be a significant amount: The average employer 401(k) match reached 4.7 percent this year, according to retirement plan provider Fidelity.”
“A buy-one-get-one-free deal is how I think of it,” adds Monica Sipes, a certified financial planner and senior wealth advisor at Exencial Wealth Advisors “The match is something that’s considered in your overall compensation, so by not taking advantage of it you’re not getting a full freight of what your employer was expecting to pay you.”
5. Tapping Into Your Retirement Fund
“One of the most costly retirement mistakes you can make is to withdraw money from your retirement fund before you retire,” notes Katie Brockman for The Motley Fool. “On the surface, that may not seem like such a disastrous move, but over time, it could potentially cost you tens or even hundreds of thousands of dollars.”Take what happened during the COVID-19 pandemic. Because of unexpected expenses, “the average retirement account withdrawal was around $5,500” in April 2020.
So, let’s say that you’re 40 years old with $102,000 in your retirement account balance. It’s also earning an 8 percent annual rate of return on your investments and you aren’t making further contributions. “That single $5,500 withdrawal can amount to around $55,400 in lost potential savings after 30 years,” clarifies Brockman.
The best way to avoid this? Build an emergency fund to handle the unexpected. Preferably, you should have to cover three to six months’ worth of living expenses.
6. Forgetting About Taxes
“If you’ve been saving for a while, you might get excited when you peek at your balance,” writes Andrea Coombes over at NerdWallet. “Don’t forget that a chunk of that money—assuming it’s in a 401(k), traditional IRA, or similar tax-deferred account—will go to taxes.”While taxes are unavoidable, taxes, “you can diversify with after-tax accounts,” Coombes adds. “For example, with a Roth IRA, you put money in after you’ve paid taxes. Then, your money, including investment earnings, comes out tax-free in retirement.”
You could also put your savings in a taxable investment account. “You may owe taxes annually on capital gains or dividends, but those rates often are lower than regular income tax rates,” adds Coombes.
7. Spending Instead of Rolling Over
Have you switched jobs? If so, then “you have the option of rolling over your employer-sponsored retirement account into another account,” says Serenity Gibbons in a previous Due article. You can do this “either with your new employer or an independent account that you’ve set up on your own—or cashing out,” adds Serenity.“According to retirement expert Jack Vanderhei, 70 percent of workers who switch jobs in their 20s cash out instead of rolling over, while 55 percent of workers in their 30s make the same mistake.”
8. Putting All Your Eggs Into One Basket
When it comes to investing, the best piece of advice that you may come across is to diversify your portfolio. It ensures that you aren’t buying too much into just one stock. It also prevents you from investing either too aggressively or conservatively.9. Not Being Aware of Fund Fees
Speaking of investing, while you shouldn’t avoid the market, you should be aware of the hidden fees involved. In fact, one study has found “that investors lose to fees can amount to $400,000 over a lifetime.” These can include advisor fees, which can be as much as 3 percent, and expense ratios that can vary from 0.5 percent to 0.08 percent.10. Ignoring The Impact of Inflation
According to Statista, the inflation rate is projected to range from 2.73 percent to 2.23 percent over the next few years. At first, that may not seem like a big deal. But, it still impacts just how far the dollar will go. So, if you have some retirement savings in a fixed savings accounts then it’s going to lost value over time.11. Putting Your Kids First
Obviously, you have to provide for your children. And, you also want the best for them in the future. No wonder that 52 percent of parents stated in one survey “that it was more important to save for their children’s college than it was for their own personal retirements.”12. Sacrificing Your Livelihood to Care For Aging Parents
According to the Caregiving Action Network, “more than 65 million people, 29 percent of the U.S. population, provide care for a chronically ill, disabled, or aged family member or friend during any given year and spend an average of 20 hours per week providing care for their loved one.”While many find this act of love to be rewarding, it can also put a dent in your retirement plans. Try to find ways to make up for these financial losses, such as passive or work-from-home opportunities.
13. Not Thinking About Healthcare
Many of us severely underestimate how much we’ll need for future healthcare expenses. In fact, according to the Fidelity Retiree Health Care Cost Estimate, “an average retired couple age 65 in 2020 may need approximately $295,000 saved (after tax) to cover health care expenses in retirement.”Moreover, long-term care could have a total cost of $246,384. How so? Well, a semi-private room in a nursing home will set you back roughly $6,844 per month. That comes out to $82,128 per year. So, if required for three years, that’s how we come up with this figure.
14. Carrying Over Debt
For most of us, transitioning into retirement means living on a fixed-income. So, if you’re still paying off debt, such as credit cards, auto, and student loans, that could cause you to burn through your retirement savings. In fact, LendingTree found “that older adults born between 1949 and 1954 (ages 66 to 71) carried an average of $22,951 in non-mortgage debt in the second quarter of 2020.”15. Falling for Too-Good-To-Be-True Offers
“Hard work, careful planning, and decades’ worth of wealth-building are the foundations of financial security in retirement,” writes Bob Niedt for Kiplinger. “There are no short cuts. Yet, Americans lose hundreds of millions of dollars a year to get-rich-quick and other scams, according to the FTC, as elder fraud runs rampant,” he adds. “Of the more than 3 million complaints received in 2016, 37 percent were filed by people ages 60 and over. Fraud victims reported paying $744 million to scammers.”“States’ Attorney General offices and the FTC offer tips for spotting too-good-to-be-true offers,” Niedt states. “Tell-tale signs include guarantees of spectacular profits in a short time frame without risk; requests to wire money or pay a fee before you can receive a prize; or unnecessary demands to provide bank account and credit card numbers, Social Security numbers or other sensitive financial information.”
16. Not Downsizing or Refinancing
Even if you’ve paid off your mortgage, housing is still a major expense–Zillow states that the typical home value of homes in the United States is $262,604. Mainly this is because of recurring expenses like property taxes, utilities, maintenance, insurance policies, and possibly homeowner’s association fees.17. Putting Your Money Into Variable Annuities
There are advantages to variable Annuities, such as receiving a regular income for the rest of your life. However, there are drawbacks as well. For starters, they’re vulnerable to market fluctuations. And, they can cost 50 percent to 100 percent more in fees and surrender charges.18. Creating an Unrealistic Retirement Budget
Sit down and create a retirement budget that addresses the following:- What kind of lifestyle do you want to live?
- Where do you want to live?
- Do you plan on traveling?
- What are your business goals?
- Are you expected to financially help other family members?
