In preparing for retirement, especially when the end of your career seems a long way off, it’s easy to put your planning aside for another day. For many individuals, however, retirement often sneaks up faster than anticipated, and starting the planning process too late in the game can have dire consequences. Whether you’re a few years from retirement or just entering the workforce, make sure to avoid these seven retirement planning mistakes.
No Retirement Plan
You plan for everything in life, from having children to buying a home, so why not plan for retirement? A great plan is an important part of retirement preparations, ensuring you have the appropriate means to live the life you want. Studies show that adults who create a comprehensive retirement plan early are far more likely to follow through, providing the actionable solutions you need to prepare for what the future may bring. After all, it’s hard to get where you want to go without a road map guiding you.
Not Saving Enough
Throughout most of your adult life, there is always a steady stream of money coming in to cover expenses, whether planned or unexpected. In retirement, this all changes. Suddenly, your savings is your only financial support, and when it’s gone, it’s gone for good. Without preparing early and putting enough money into savings and retirement investments, it’s all too easy to find yourself a decade into retirement with nowhere to turn. By saving early and following a financial plan, you can make sure you have the means necessary to support yourself when your career comes to an end.
Relying on Social Security as Sole Means of Retirement Income
Social Security is a government program designed to supplement income upon retirement. It is not intended to be a sole income source. Too many adults believe that Social Security can replace savings, but this is generally far from the truth. The maximum benefit for an individual retiring in 2016 with 35 years of work history is $2,639 per month, which is not enough for most Americans to live on. Without planning ahead with adequate savings, you may find yourself without the money you need to support a high quality of life.
Underestimating Health Care Costs
The future is full of limitless possibilities. Unfortunately, these possibilities are not always a good thing. Even if you’re in perfect health when you retire, the chances of things staying that way are slim. In planning for retirement, it’s important to take into consideration the potential for increased health care costs down the road… and save accordingly. Even if it doesn’t seem logical to invest in a good Medigap plan during the initial enrollment period when you don’t need it yet, making arrangements now might be the saving grace you need later.
Spending Too Much Too Early
Upon bidding the workforce farewell, it’s easy to feel like the world is your oyster. Without a day job imposing time limitations, many new retirees jump in feet first, putting thousands of dollars into travel, fine dining, and cultural experiences a day job didn’t allow. While this is all fine and well, spending too much too early can leave you in a stressful place down the road. Build expectations related to early spending into your retirement strategy, and plan accordingly. With the right preparation, you can spend how you want without sacrificing your comfort in the future.
Spending Too Much in Fees
Investing is a wise step in planning for your future, giving you the opportunity to grow money that would have made pennies on the dollar in a savings account. Investing wisely, however, is another story. Too many adults pay far too much in investment expenses, whether in fees from chronic buying and selling or in commissions to a financial advisor who doesn’t have an investor’s best interests at heart. Investing should give you the opportunity to grow your money without costing you a pretty penny. If your fees are eating away at your profits, it may be time to rethink your strategy.
Investing in Variable Annuities
Annuities can be very valuable tools in planning for retirement, but that doesn’t mean all annuities are made equal. Jumping into an annuity without considering all of your options can be very risky, especially when a variable annuity is involved. Similar to a mutual fund in structure with much higher fees, these financial vehicles are risky and cannot always provide the income you were expecting. In addition, withdrawals are taxed as ordinary income, costing you money in the long run. For most individuals, fixed index annuities are a much better option, giving the opportunity to participate in stock market gains without exposing your nest egg to the ups and downs of market performance.
Making the most of retirement is always a challenge, but with proper preparation, you can make the process as easy as possible. By avoiding these critical planning mistakes, you can do what it takes to build the financial base you need to enjoy a long and happy life once your career draws to a close.