Many of us spend years looking forward to and planning for retirement. It’s only natural to want to enjoy the fruits of your labor and spend your golden years stress-free. That’s why it’s important to avoid making mistakes that could throw a wrench in your plans. A secure retirement comes from meticulous planning and not leaving anything up to chance.
Steering clear of these five mistakes can help you accomplish your long-term financial goals.
1. Not having a plan.
Not having a clear plan for your retirement is a huge mistake. Without a plan in place, your odds of having a stress-free retirement, or even one at all, is slim. Every person’s situation and goals are different, which is why you’ll want to calculate how much you’ll need and figure out how to get there. It seems counterintuitive to list something so basic, but nevertheless it’s true. Not planning at all is putting a nail in the coffin of your retirement. It’s not only important to create a plan, but to update it regularly to reflect your wants, needs and any lifestyle changes.
2. Not utilizing tax-advantaged accounts.
Another mistake to avoid is not making the most of tax-advantaged accounts you may have access to, such as a 401(k), Roth IRA or a traditional IRA. All of these accounts are great vehicles to grow your retirement income over time.
A 401(k) is a retirement option provided by your employer. With a 401(k), a specified amount of money is deposited into your account from each paycheck. The money is from your income before taxes are taken out. These plans can vary vastly depending on your employer. Some companies offer a matching program, which can be very beneficial.
An IRA, which stands for Individual Retirement Account, allows you to save money outside of any options offered by an employer. A Roth IRA puts dollars that have been taxed into your account, they grow tax-free and you can usually take money out tax and penalty free after the age 59 ½. With a Traditional IRA, you can contribute taxed or untaxed money into the account, your money will grow tax-deferred and withdrawals are taxed.
Deciding which type of account is best for you can be confusing, and knowing the differences and benefits of each type of account is a good start. Getting professional help is a great way to determine what you should do or if you’re on the right track. Again, each person has a unique situation and they’ll require a different plan. However, not utilizing any tax-advantaged accounts to save for retirement is a huge mistake!
3. Underestimating the length and cost of retirement.
Many aim to retire by 62-65. If you do, this means you’ll probably need your funds to last you anywhere from 20-25 years. Because of this, you’ll also want to plan for inflation. As time goes on the cost of living could rise. Not taking this into consideration could leave you without money later in life, or needing to delay retirement.
Other aspects people tend to underestimate are costs such as healthcare and long-term care. Even if you’re enrolled in Medicare, it only covers a portion of healthcare costs. So, you may have to plan to purchase supplemental insurance or pay out of pocket. Without taking these costs into consideration, you could blow through your retirement savings.
4. Cashing out your 401(k) savings.
Most people have more than one job throughout their lifetime. This means they may be contributing to more than one 401(k) throughout the years. It’s common to cash out this account as you’re leaving a job, however, you may not want to. If you withdraw money from them too early you can be hit with harsh penalties—not to mention the taxes you’ll pay on the income. So, if/when you change a job where you’ve been contributing to a 401(k), you’ll want to be aware of all your options.
5. Not taking care of your health.
Because healthcare can be so costly, it’s imperative that you protect your health now. This means exercising, resting, keeping stress levels low and eating a nutritious diet. Also, getting check ups regularly can help you prevent disease or catch problems early.
Taking these steps can allow you to work longer, enjoy your life and help prevent you from having to pay for long-term care early. Another benefit of being healthy is the potential to secure more affordable rates for coverage such as life insurance, disability and long-term care.
It’s never too late to start, rethink or change your retirement plan. Not only avoiding the mistakes above, but leaning on advice from a trust and vetted financial professional can help immensely. The thought of figuring out how to set up a successful financial future post-retirement can be overwhelming. SimplyAdvised can match you with a local professional to make the process as easy as possible.