Life After Work: 4 Retirement Planning Mistakes You Must Avoid

Retirement Planning

Retirement Planning

Did you know that 40 percent of retirees in the U.S. rely solely on Social Security? Of course, having Social Security is better than nothing, but considering that the average monthly check is about $1,500, it’s hard not to wonder how they’re surviving in these harsh economic times.

What are you doing to ensure your retirement won’t have a similar outcome? Starting to plan for your retirement in good time is essential.

To help you make the right financial moves, we’re sharing common retirement planning mistakes people make and what you can do to avoid them.

Keep reading!

1. Thinking You’re Too Young to Start Planning for Retirement

When is the right time to start planning for retirement?

The best time is as soon as you start making an income as an adult. If this time is already behind you, the next best possible time is now! Whether you’re in your 30s or 50s, it’s never too early or too late to start planning for your sunset years.

Of course, if you’re in your 40s or 50s, naturally retirement will be on your mind. No one really needs to remind you. By now, the consequences of entering retirement without adequate preparations are clear.

More often than not, it’s the younger adults who need reminding about retirement planning. They believe that time is still on their side so planning for retirement can wait until later. The only problem is this “later” tends to show up earlier than expected and catches so many people unprepared.

Don’t make that mistake.

Starting to plan for retirement when you’re young has two powerful benefits. One, you’re most likely to meet your retirement savings goal by the time retirement age rolls around. And two, you’ll develop a habit of financial planning, which is key to your overall financial wellness.

2. Not Making the Most of Retirement Savings Plans

There are a handful of retirement savings plans, including:

  • 401(k) -workplace plan
  • Solo 401(k) – for self-employed
  • Individual retirement accounts (IRA)
  • Life insurance
  • Thrift Savings Plan (for federal employees).

Your eligibility for these plans will depend on your personal circumstances, but most of them are voluntary. That might be a good thing for your finances right now, but it does you a big disservice when it comes to saving for retirement.

If you’ve already taken the commendable step of enrolling in a retirement savings plan, are you making the most of it? Contributing the bare minimum to a retirement plan is a mistake most people make.

Let’s say you’re formally employed. This makes you eligible for a 401(k) plan. In fact, most employers will sign you up automatically, and a small percentage of your salary will be deducted and deposited into the plan every month.

If 3 percent is the default deduction, for example, don’t settle for it. Asking your employer to increase your rate to, say 5 percent, will enable you to save more for your retirement.

The best way to make the most of a 401(k) plan is if your employer is offering to match your savings. Don’t pass on the opportunity to fatten your savings. Increase your savings and pass on the challenge to your employer.

Usually, there’s more than meets the eye in many of these retirement plans. There are tax repercussions, for instance. Be sure to consult a professional to advise you on the various plans, so that you’re in a better position to choose one that gives you the most advantage.

3. Failing to Have a Retirement Savings Goal

The vast majority of people don’t have a retirement savings goal. They just hope whatever they’re saving will add up to a decent amount that can sustain their life in retirement.

That’s a big mistake.

Without a retirement savings goal, you won’t, for instance, what percentage of your income you need to save today. You might even not see the need to explore other retirement planning strategies beyond saving a portion of your income.

So, how do you create a good savings goal?

Start by evaluating how much money you’ll need to have a comfortable retirement. As a rule of thumb, you need about 10-12 times your annual income by the time you’re hanging up your spurs. However, when you consider that your healthcare expenses will likely increase in your senior years, it’s essential to aim to save a lot more than that.

Once you have a rough estimate of what you’d like to take home at retirement, you can then start making sound plans on how to achieve it. Will savings alone cut it?

4. Making Poor Investment Choices

Of course, the average person isn’t going to save up enough money before retirement comes calling. Often, it’s a combination of saving and investing that does the magic.

On the surface, investing appears simple. With so many investment markets available, it’s easy to think all you need is investment capital, and boom, riches galore!

Investing is a complicated science. In fact, it’s harder than saving. Millions of people have made bad investment decisions that have left them empty-handed for retirement.

If there’s a time you’ve to get your investment strategy spot-on, it’s when you’re investing for retirement. You don’t have many chances to get it wrong and try again.

A big mistake to avoid is taking your entire retirement savings and investing them in instruments that promise sky-high yields. It’s great if the investment works out, but remember, the higher the returns, the higher the risk. People have lost life savings in cryptocurrency, for example.

It’s advisable to go for low-risk investments that have a great performance record. Investing in property for retirement, for example, is a smart move.

Avoid These Retirement Planning Mistakes At All Costs

Everyone wants to live their best life in retirement, but the grim reality is only a handful of retirees are traveling the world or living in luxury retirement homes. The majority are struggling to make ends meet, largely because they didn’t plan adequately for their retirement. If you don’t want to suffer the same fate, you must avoid these retirement planning mistakes.

Keep tabs on the finance section of our blog for more tips, hacks, and tricks to improve your personal finances.