10 Costly Retirement Savings Blunders You Want To Avoid
Retirement is something that everyone needs to consider, even if they are nowhere near that age. By the time you get to age 65, you’re expected to live off of what you have in retirement accounts. Even when people are consciously working on their retirement funds, there are still a few mistakes they make.
Here are 10 common and costly retirement savings blunders many people are guilty of:
1. Not Having a Plan for Retirement Money
The most common has to be having no plan. Depending on the institution that educated you, retirement may have never crossed your mind.
Invest in stocks or build and sell things to start a cash flow to go to your retirement accounts.
2. Forgetting About Inflation When Making a Plan
Inflation is important to consider when setting yourself up for retirement. Today, you cannot buy on $15 what you could buy 15 years ago. As you deposit to your accounts, keep an eye on the rate of inflation and adjust your contributions accordingly.
3. Failing to Save Enough Money for Retirement
According to certified financial planner Michelle Jones, “A lot of people think they can’t afford to save, but you can’t afford not to save.”
Jones recommends saving the money you’d spend on a Friday night out can go instead towards your retirement fund.
4. Raiding Retirement Accounts Early
Sure, you might think “I can dip into this account. I’ll just put the money back in later.” How certain are you it’ll last doing that? Going back to college can be supported by borrowing against your 401(k), but it takes a few zeroes to ensure your account gather substantial interest.
5. Supporting Your Adult Children
Every parent wants to make sure their children are looked after, even as adults. But this might be the time to finally let go, as Pat Grenier of CFP BRP/Grenier Financial Services put it:
“It’s really hard to tell a parent, ‘[Your child is] an adult now.’ No parent wants to see their adult child fail. Sometimes I’ll have parents cry, and I’ll have to say, “This is the pool of money you have, and my projections are that it will last this long.’ I’ve had some clients who will go into debt for their children to get them out of a jam, and here they are on a fixed income and having to pay back loans.”
6. Being over-invested in Your House
I’ve had first hand-experience seeing my parents become over-invested in properties they later lost. Investment strategist Scott Burns put it pretty well when he said of retirees, “They’re spending 40%-50% of their income on their shelter. Your house is maybe an appreciating asset if you’re lucky, but it’s also a consuming asset.”
Everything that isn’t necessary for the house to function should be seen as a luxury.
7. Not Being on The Same Page as Your Spouse
Grenier also said about couples situations where, “One is risk-averse and one is not, and one will to pay any of their attention to their plans and overspend, and the other is trying not to spend.” Communicate and ensure a retirement plan is in the works.
8. Not Creating an Estate Plan
Grenier added, “If you don’t have an estate plan, then you may not be able to transition your wealth to your spouse or partner or your next generation of heirs. It may create huge tax liability so there’s a lot less for your spouse, partner or kids. It may tie up assets, and the assets may not go to the people you want to have them.”
9. Underestimating healthcare costs
At 65 years old, statistics say you’ll spend over $250,000 of your own cash on doctor’s visits and medicine. Ensure that you have a plan to cover the possible medical costs that go along with aging.
10. Being Late to Sign up for Medicare
If you are late to sign up for Medicare, you are risking paying 10% more every year you don’t sign up. Get ahead of the game and sign up as early as 3 months before your 65th birthday to avoid those penalties
If retirement is still far off, then you’ll have plenty of time to contribute to your retirement account. You’ll have a proper nest egg when you reach age 65. If you are aged 65 or older, then hopefully you have enough to keep you from having to rejoin the workforce.