Retirement Planning Mistakes You Need to Avoid

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Before long, many people will soon be entering retirement. Some will have done some retirement planning and know what it will take to have a happy retirement. Others who have not carefully planned for their retirement (or not planned at all) will likely run out of money too soon and have less than desirable years at the end of life.

Over the years, many seniors have revealed their mistakes concerning retirement to help keep others from making the same mistakes. Here are some of the most common.

1. Retiring Too Soon

It is natural to want to retire as soon as possible. Many people desire to, but they oftentimes are not ready and have not considered the long-term cost. One good reason not to retire early is Social Security.

Although you could start getting Social Security benefits at 62, Fidelity says you will get nearly $1,000 more each month if you wait until you are 70. Each year you wait, the benefits increase by 8 percent. That extra money could make a big difference in your retirement years, especially as your medical bills increase. It could also help you enjoy a more comfortable retirement.

2. Not Saving Enough

It is a good idea to carefully figure out how long you might live before retiring. People live longer now than they did just a few years ago. The Centers for Disease Control says men live about 73.5 years on average, and women live about 79.3 years.

Although the above figures are average, many people do live longer. Retirement planning should cover your financial needs for at least 20 years after you reach 65. Remember that some people live to be more than 100—35 years after 65. Any money that is left over can go to your heirs.

Many seniors today are discovering that they did not save enough when they had the chance. If you want a better idea of how much you should save for retirement, try using the retirement calculator at Bankrate. The sooner you start saving, the more time your money has a chance to multiply. If your employer offers matching funds, contribute at least enough to get the maximum amount from your employer.

3. Spending Too Much

When you first retire, it is easy to want to spend a lot of money doing those things you had planned. They all come with a cost, and if you are not careful, it can lead to considerable overspending. Before you take those trips or move overseas, calculate a budget based on your retirement savings and expected income, then limit yourself to that amount. Remember that there will always be some unexpected costs down the road, and health costs increase as you age.

4. Making Early Withdrawals

If you run into financial difficulties before you retire, you may be tempted to make a withdrawal from your IRA or 401(k)s. While the money is available, you will borrow it at a considerable cost if you are not yet at least 59½.

You will also be unlikely to be able to make up the difference in your lost retirement savings. CNN mentions that if you cannot repay a loan taken from your 401(k), you will have to pay a 10 percent penalty fee plus taxes on the amount withdrawn.

Investopedia says borrowing from a traditional 401(k) or IRA can cause double taxation. You will have to repay the loan with after-tax money, and when you withdraw it, you will have to pay taxes on it again.

5. Making Poor Investment Choices

Choosing the wrong investments or putting all your investment money into a couple of stocks can ruin your retirement savings. You will have better protection if you diversify your money into different sectors.

When market downturns occur, Schwab advises that you move some of your assets into more stable ones. They suggest short-term bond funds or high-quality, short-term bonds.

It is also a good idea not to try to time the market or base your investments on emotions, says NASDAQ. They say that it is one of the worst investment strategies possible.

6. Not Reducing Your Debt

Having as much money as possible during retirement means you should try to eliminate as much debt as possible before you retire. Experian recommends that you pay off your credit cards, mortgage(s), car loans, etc., and make sure your credit score is good so that you can get a loan with low interest rates—if needed.

7. Not Considering the Cost of Healthcare

As you make plans for your retirement years and how much you will need, you must also consider how much it will cost for medical care. Medicare does not cover dental, vision, some prescriptions, and long-term care.

Most people have no idea how much medical expenses can run during their retirement years. Fidelity says that the average medical care cost for a married couple after reaching 65 is $315,000. Notice that this is the average cost—some people will pay much more.

One way to reduce your medical costs and taxes is to get a health savings account. Contributions to the account are tax-deductible, and money used for qualified medical expenses is withdrawn tax-free, as well as any remaining money during retirement.

As you save for retirement and create the retirement plan you need for yourself and your spouse, seek professional advice from a financial advisor or retirement planner. They can help you avoid the above mistakes and more, and ensure you have a satisfactory plan for a more comfortable retirement.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.