Retirement Mistakes to Avoid Now or Regret Later
How to fund the golden years? That is a big question to contemplate as retirement approaches. But long before you clock out, make sure you are making the right choices that will lead to a successful retirement. Here is a list of 5 of the biggest retirement planning mistakes to avoid.
Planning to Work Forever
Many people plan on working into retirement years, but the fact is far fewer end up actually doing it. You cannot count on bringing home a paycheck indefinitely. You could be forced to stop working and retire early for any number of reasons. Health-related issues and downsizing or layoffs are the top two reasons most do not end up working as long as they have envisioned. Assume you will not be able to work as long as expected, save early, save often and save as much as you possibly can. Don’t be one of those people with no back up plan. That is a recipe for disaster.
Delaying Saving for Retirement
Most people wait way too long before starting to save for retirement. Many people do not start to aggressively save for retirement until they reach their 40s or 50s. Even with a late start, with enough discipline, people can still reach their goals, but you want to put the power of compound interest to use in your favor by starting as early as you possibly can. To reach a $1 million dollar retirement goal by age 65, assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.
Taking Loans Out Against Your 401k
Taking a loan from your 401(k) account can be tempting for many people, it’s your money after all. However, short of a major emergency where you have no choice, it is a terrible idea. You’re missing out on the investment growth and the cash that was borrowed. Don’t short-change yourself or your retirement with impulsive moves that cost you big time. Before borrowing from a 401(k), explore all other loan options and make sure you understand the consequences, penalties, fees and tax implications of any move you decide to make.
Shying Away From Some Risk
Avoiding stocks because they seem too risky is one of the biggest mistakes investors can make when saving for retirement. Yes, the market has cycles of ups and downs, but over the past 90+ years, stocks have returned an average of about 10% a year. Other typical investment options don’t come close and many others don’t even keep up with inflation. Dividends from stocks can also help create income streams in retirement or be reinvested before retirement years to increase share holdings. Remember, now days, nest eggs need to keep growing to finance a retirement that might last 30+ years
Ignoring Health Care Costs Like Long-Term Care
We all want to believe we’ll stay healthy and active long into our retirement years but father time is undefeated. Even if you do whatever you possibly can to take care of yourself and stay in good health and shape, most of us will fall ill as we get older. Even if we escape a serious illness, the body slows down as we hit the later years. Odds are you are going to need long-term care at some point, and most people are not prepared for that cost and often get sticker shock. It can easily reach six-figures annually and depending on the time length it was needed, at that rate a retirement account can go very quickly. There are options for funding long-term care, make sure you are choosing once that makes sense today as well as tomorrow.