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Most people want a comfortable retirement, but such a reality is only possible with proper planning. Financial literacy is not something everyone has developed throughout their adult lives, which means costly mistakes are easily made. Make the wrong move or no move at all, and you’ll have to work and worry throughout your retirement.
Fortunately, avoiding this starts now. By preparing ahead and learning about all the potential mistakes that others in your position have made, you can make sure you’re on the right track.
With that in mind, we’ve looked at all the mistakes other retirees have made to see what they’ve regretted moving forward. Here are 19 retirement planning mistakes that could cost you.
Believing Social Security Will Support You Fully
Social Security benefits can provide you with a consistent monthly income source that you can leverage to afford your living expenses. But it’s a common mistake to believe that Social Security alone will be enough to live on.
A couple thousand each month will not suffice, especially as things become more expensive. It’s crucial to develop other income sources if you’re hoping to be comfortable in retirement.
Failing to Account for Inflation
Speaking of things becoming more expensive over time, few retirees account for inflation when planning for retirement. While inflation rates will vary annually, most people should expect things to get more expensive, not drop significantly in price.
If you don’t do this, you’re essentially planning for a future that will be far more expensive than you anticipate. Make sure you account for inflation when you’re working on developing your nest egg.
Retiring Too Early
Early retirement is most people’s dream, but it’s rarely viable unless you make a significant amount of money and know you can support yourself with limited support from Social Security. Unless you’re one of these people, you’ll want to aim to retire at 67.
Some will retire before this and miss out on being able to tap into their maximum benefits. They then regret this later when their income isn’t helping them support their desired lifestyle.
Not Diversifying Your Investments
Investing is crucial to growing your wealth and ensuring you have money that you can tap into beyond just Social Security. Fortunately, investing in retirement accounts like a 401(k) or even individual investment vehicles like stocks is easy.
However, if this is all you do, you’ll most likely regret it later. You must diversify your investment to mitigate risk and take full advantage of the various investment vehicles at your disposal. You may even want to look at specific strategies like the blended income approach, which is currently quite popular.
Forgetting About Taxes
The tax implications of every investment will impact your wealth, regardless of whether the outcome is positive or negative. If you forget about taxes that come with earning income from your investments or the implications of selling certain assets, you can get hit with a tax bill you can’t afford.
Always account for taxes, or you’ll deal with mounting debt in retirement that will make your financial situation much more difficult.
Thinking Your Health Will Remain Consistent in Your Golden Years
Your health will decline with age, whether it is slow and gradual or rapid. Unfortunately, some seniors nearing retirement age will forget to sign up for Medicare or take the time to understand which plans and supplemental coverage will be necessary to lower medical costs as they age.
Healthcare is important and expensive, so take the time necessary to create a plan that supports you and your financial goals in the future.
Going Into Retirement with Debt
Not everyone has the privilege of entering retirement without any debt, but it should be a goal to eradicate it before you reach retirement age. Why? Debt digs into your already limited financial resources.
The more debt you have, the more money you’ll need to allocate to paying it off rather than paying for your living expenses or enjoying the activities you’ve been looking forward to in retirement. Failing to erase all or most of your debt will weigh on you once you retire.
Starting Too Late
It’s optimistic to say that it’s never too late to start thinking about retirement. While this phrase might apply when you’re younger and you may not have thought too much about your future, starting right before retirement or even a few years before will undoubtedly impact whether or not you’ll be able to retire comfortably or at all.
Don’t start too late. It could cost you your golden years unless you can secure some major windfall to support you into your old age.
Not Going for Higher Earning Opportunities
It might seem unfair, but the more you pay into Social Security, the more you get out of it. This means those who make more over their lifetime will naturally see greater benefits than those living in poverty or barely making ends meet.
If you don’t pursue higher-earning opportunities or try to elevate yourself and land a good job, it will impact how much you bring in later and how much you have stashed away. It’s easier said than done, but this is something to keep in mind when approaching the topic of retirement.
Setting Unrealistic Goals
We all want to have millions tucked away, several income streams, and high Social Security payments. But while this is ideal, it can be unrealistic for some. When you set unrealistic goals, you fall short of them and have a plan in place that you can’t see through.
Ask yourself, what can I do for retirement? How much can I put away? What will my quality of life look like later? Then, be realistic and set goals that match your abilities.
Spending Too Much Money
Retirement is an exciting life milestone, and this can lead some people to start spending like there’s no tomorrow. By the time they realize they’ve made a mistake, they’re extremely low on funds and unable to navigate retirement like they envisioned.
Whether nearing the finish line or at it, establish your budget and stick to it. Your future self will thank you for not spending all your money before you can truly enjoy your time off.
Not Living Below Your Means
Even when you’re retired, you have to listen to the age-old financial advice of living below your means. Living lavishly in retirement sounds fun, but a maxed-out budget can be disastrous if you deal with expensive emergencies.
Live below your means, and you’ll be able to navigate rising prices, health or life emergencies, and other potential obstacles with ease.
Making Risky Investments
Nowadays, it’s easy to see certain investments and think they’re your one-way ticket to wealth and financial freedom. The reality? Alternative investments are quite risky and only for those with money to throw away.
It’s an easy and common mistake to put money into investments you don’t understand and lose it all along the way. If you don’t fully know what it is, don’t invest your hard-earned cash into it.
Ignoring Employer Matching Programs
If you’re not taking advantage of employer-offered retirement plans and employer matching for those plans, you’re throwing away free money that can boost your retirement savings.
Many overlook this and regret it once they’ve retired. Few employers seem to offer these types of advantages these days. If it’s something you can leverage, do it!
Not Setting Aside Savings
Investing is the most effective way to build wealth, but you shouldn’t forget to save money. Having savings makes it easy to access funds you’ll need when you’re retired.
Because investing is so heavily emphasized, many people forget to save 10 to 15% of their income in a savings account for retirement. Make sure you prioritize savings alongside your investing activity.
Setting and Forgetting Investments
Getting started with investing is a great first step. But investing without returning to your investments to make sure that you’re getting the most out of them is a mistake that can cost you. The reality is that financial goals and markets change over time.
If you don’t revisit your portfolio and make tweaks periodically, you can end up losing money or missing out on other investment opportunities that could be more beneficial for your retirement planning. You might even wish to have someone else manage your investments so that they can keep you on track for retirement.
Being Too Conservative With Your Investments
You don’t want to take major risks with your money, but you don’t want to be too safe. Risk-averse investors realize the error of their ways when they’ve only invested in bonds or CDs, receiving very little in return for their efforts, especially if inflation outpaces the interest they earn.
Don’t take unnecessary risks, but don’t fear a little volatility. It comes with the territory.
Thinking You Can’t Make Money in Retirement
Retirement doesn’t mean you have to stop working altogether. Many people run businesses or work when they’re retired. It’s a common mistake that many make when they reach retirement age.
A job or a side hustle can help you earn more income to pay for your living expenses. Just make sure you’re not making so much that it affects your Social Security benefits—this can be a costly mistake, too!
Giving Up Before You’ve Even Started
Even if the retirement outlook isn’t great, that doesn’t mean you should give up. People who do this wish they had used their time more wisely.
Contribute what you can, look for opportunities to earn and invest more, and keep your eye on the prize. It can be tough with a late start or limited resources, but it’s possible with some grit and determination.
