There's more to retirement planning than putting money in your 401(k) or IRA. In fact, retirement planning is one of the most important financial goals you'll undertake during your lifetime. Do it right and you'll enjoy the things you want to do during retirement. Do it wrong and you might have to sacrifice some retirement dreams or worse- go back to work.
We put together a list we consider to be the most common mistakes people make when planning for retirement. It's important that you avoid these mistakes!
- No Plan at All
It seems like a no brainer, but you'd be surprised that a lot of people don't have a plan at all. Putting money away is great but if you don't have a plan in place there is no way to track if you'll have enough saved up, which brings us to the second mistake.
- Not saving enough
You have a plan, great! But is it an accurate plan? A lot of people aren't sure about how much they are going to spend once they reach retirement and as a result, have no clue on how much to save. Write down your retirement goals…ALL OF THEM! International trips, new house, college savings for grandkids- all are goals you should know roughly how much they'll cost you in retirement.
- Didn't Start Saving Early Enough
The year before you retire probably isn't the best time to start saving for retirement. The sooner you can start the better- even if it's only a couple hundred of dollars a month. Every bit counts!
- Relying Solely on Social Security
Social Security was never meant to be the only source of income a person would receive in retirement. It's important to consider when looking at the big picture but we wouldn't recommend relying on it as your only or majority of your income during retirement.
5. Taking Social Security Too Early or Too Late
There are certain benefits for taking Social Security Early, as there are benefits of taking it late. But, do you know which is best for your situation? Every situation is different and for some it makes more sense to take it early versus taking it late and vice versa.
6. Underestimating Health Care Costs
If you plan on retiring before qualifying for Medicare, be sure you know the cost of insuring yourself and/or your spouse. Medicare is increasingly requiring premiums and co-pays which means more costs for you during retirement. Don't forget that your medical bills could be higher than average depending on your health and family history.
- Believing You'll Be Able to Work Forever
We've seen it happen. A 55-year-old plans to work until they're 75, but when they reach the age of 65, they decide 75 isn't an option anymore. Their original plan wasn't designed to retire at 65 and therefore they need to figure out a different strategy to bridge the gap. We recommend checking in with yourself on a yearly basis and communicating with your financial advisor on your potential retirement date. What sounded good in your 40s and 50s might not sound good in your 60s or 70s.
- Investing Too Aggressively or Not Enough
Everyone does not have the same investment risk tolerance. Some people are more willing to make riskier investment decisions than others. Sometimes people are in different stages in life where a riskier investment strategy isn't the best option. A 25-year-old often has a different investment strategy than a 75-year-old. If your investments don't reflect your personal risk tolerance, then you could be headed for trouble.
- Not Having Estate Documents in Place
Do you have a will set up? What about Power of Attorney? Health Care Directive? Who will get all of your assets when you die? Not having these questions answered is a BIG mistake when planning for retirement. Though they might not have an affect on your actual retirement, it's nice knowing there is a plan in place in case you're not physically able to make those decisions.
- Not Planning Effectively for a Surviving Spouse
It's a common fact that women tend to have a longer lifespan than men do. So, what does that mean for the wife if her husband passes away or vice versa? Is your spouse involved with your finances? Do they know your financial plan? Will they know what to do if you pass away? Not only are those questions important to know, but a big question to know is- Will he/she be financially supported for the rest of their life if you pass away?
- Withdrawing too much or too little from investment accounts
Taking money out of your investment accounts during retirement sounds a lot easier than putting 40+ hours of work every week. But do you know how much to withdraw each month? Too much could mean penalties and fees or a lot of extra cash sitting in the bank instead of being invested and potentially growing.
- Not having a tax- efficient withdrawal strategy
This is HUGE! One typically doesn't want to pay more in taxes so why should you start taking money out without a tax- efficient plan? It can get a little tricky when you have a few different investment accounts floating around.
We know it's a lot of information to take in and can make your head spin trying to figure out all the hoops to jump through while avoiding getting heavily taxed. Our advisors are here to make it easy for you! You tell us your retirement goals, and we'll show you your "Big Picture Plan" and what it takes to help you get there.
Want to start on your Big Picture Plan? Give us a call today!
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through 360 Financial, a registered investment advisor and separate entity from LPL Financial.The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.