6 Common Retirement Planning Mistakes and How to Avoid Them

Updated on June 2018

Most of us think that we are too young for planning for retirement just now. In fact it is surprising just how many 45-year olds procrastinate on retirement planning. Some procrastinate with excuses such as children’s education, mortgage and other incidental expenses that arise in the course of one’s career.

Investing in a sound retirement is good, but not enough when one takes into considerations the various other factors that come into play.

Let’s take a look at 6 common retirement planning mistakes that most people make along with ways to avoid them:

Not Saving at the Right Time

No one thinks of dying when they are young; however, when planning for retirement, people mark their longevity very low. The average life expectancy in the US is over 77 years and this figure is expected to go up to 85 years by 2065, thanks to the improvements in medical science and technology. So, a person must consider not only how they will survive those long years, but also how they will sustain their lifestyle in these long years. Statistics show that an average person will require at least $25,000 in two or three years, even with social security benefits. Therefore, it is essential to consider whether your savings will sustain you through your post-retirement years.

How to Avoid or Fix It: It is best to be financially disciplined so your money gets adequate time to grow and you can make the most of compounding interest. Start as early as possible and keep investing.

Asset Mismanagement

As we grow older and reach the retirement age, our risk appetite goes down; however, many people do not recognize this. It is suggested that people invest in low-risk avenues, as they are closer to retirement; despite the returns being lower, the returns and the principal amount are secure. For instance, investing in stock markets is fine when one is young because if the price of the share dips, then there is a chance that it will recover in the long run, and even if it does not, one can sustain the loss. However, at the age of 65 years, if a person were to lose even 20% of their asset, it would impact their ability to fund their retirement to a great extent.

How to Avoid or Fix It: It is suggested that people invest in low-risk avenues, as they are closer to retirement; despite the returns being lower, the returns and the principal amount are secure.

Ignoring Inflation

Inflation is the rise in the price of goods and services which in turn reduce the value of money and despite this, most people do not take inflation into consideration. Ignoring inflation is one of the biggest retirement planning mistakes anyone can make because even at low rates, inflation will greatly affect your buying power.

How to Avoid or Fix It: It is generally recommended that the inflation rate must be calculated at 3% planning retirement savings. Also, one must not ignore the fact that there was a time in the early eighties when the inflation rate had been 10%. So, make sure you account for inflation and make a realistic assessment of your retirement planning.

Debt Mismanagement

On average, a person today carries $6000 high interest credit card debt into retirement. This will consume at least $22,000 in 20 year period if you pay just the minimum. This would be a huge blow to the post-retirement savings for any person. Hence, it would be worthwhile to ponder over whether you want to go into retirement with any hovering debts.

How to Avoid or Fix It: It is very important to make the right choice with your investment instruments if you want a financially secure future. So, make sure you seek expert advice before making any investment decision and save enough to meet unforeseen situations.

Not Getting Adequate Insurance

Post-retirement, the most important consideration would be planning for health care as the costs are rising even if the treatments are available. Further, at least one in four people over the age of 65 years and at least one in two people over 85 years of age will need long-term care. Estimates for 2021 suggest that a private room in a nursing home could cost $4,000 per month or more depending upon the service needed.

How to Avoid or Fix It: Retirement is a distant reality; however, it will stare into your face suddenly so stay covered for every adversity with adequate insurance. Accept the reality and make the provisions in advance while there’s still time at hand unless you are willing to forego all your retirement savings to a medical emergency or Financial emergency without any emergency fund.

Not Utilizing Tax Incentives to Maximum

This is a no-brainer retirement planning strategy that you should be making the most of because once you lose this opportunity, you can never retrieve it. The contributions you make to your retirement account not only reduce your taxable income but also allow your retirement savings to grow tax-free.

How to Avoid or Fix It: If you are still blindly walking past the free money coming from an employer-sponsored retirement plan and ignoring those significant tax savings, it is a big mistake. So be prudent with your investments and build a solid retirement corpus that keeps you covered in case of financial crisis.

It is better to stay alert of these common retirement planning mistakes than regretting later. So, be aware of them and start your retirement planning right away to save yourself from financial troubles later. Call (866)639-0066 today to know the investment secrets that can supercharge your wealth-creation efforts.