15 Retirement Planning Mistakes to Avoid in 2016
The importance of retirement planning cannot be overstated, and it should be your foremost financial goal. According to statistics, over 90% of people will outlive their retirement savings, and you need to ensure you aren’t one of them.
If done correctly, your retirement plan can provide you with financial security, comfort and independence in your golden years. On the flip side of the coin, though, making any of the common retirement income planning mistakes can lead to being dependent on adult children or relatives, and watching every penny.
You have to get it right on the first go, because there are no second chances available after you retire!
What Should You Avoid in Your Retirement Income Planning?
Here are the top 15 retirement savings mistakes to avoid:
- No Retirement Plan At All – Almost 50% of working individuals have not calculated their retirement expenses or started saving for them. This increases the risk of outliving your savings and becoming dependent on others. Set a retirement budget, try it out for a few months, and start saving.
- Insufficient Savings – It’s not enough to just set a budget based on current expenses, but factor in the cost of inflation, long-term healthcare and medical costs too. Save more than you think you’ll need, and plan for a longer lifespan than you expect – better safe than sorry!
- Putting It Off for Later – If you wait till you’re older before you start saving, you won’t have a well-padded fund to offset the costs of inflation, health care and possible market losses. It’s easier to reach your goal by saving smaller sums over a longer period, instead of larger amounts in shorter time.
- Relying on Employer-Provided Benefits/Social Security – People often put off retirement income planning, believing their social security or pension benefits will be enough to tide them over. However, these don’t take inflation into account, and budget cuts could leave you high and dry.
- Leaving Insurance Out of It – Investing in insurance is crucial, to safeguard your family’s financial security and assets against prolonged illness, financial losses or your death. Some insurance plans also work as investments, accumulating a cash value or offering returns after a certain term.
- Ignoring Possible Tax Breaks – The government provides various opportunities for tax deferral, so not considering these is folly. Maximize your retirement savings with 401(k), 403(b) and IRA plans, which allow your funds to grow tax-deferred and offer tax breaks in the present too.
- Spending Instead of Rolling Over – When you switch employers, don’t be tempted to cash out your retirement savings. Not only does that deplete your future income, but involves taxes and penalties if you make withdrawals before retirement. Instead, rollover the plan to your new employer.
- Not Investing in 401(k)s – The responsibility of retirement planning today lies entirely in your hands, which is why you need to enroll for a 401(k), 403(b) or similar plan with your employer. Contribute at least as much as your employer – this pre-tax money will keep compounding and growing tax-deferred.
- Underestimating Retirement Expenses – Plan your retirement budget as if you would live to be 100, so you don’t outlive your retirement savings. Also, factor in the costs of long-term care and assistance you may need with advancing age. Invest in LTC insurance to prevent decimating your savings later.
- Over- or Under-Spending – When you’re picking out investments, especially insurance plans, it’s essential to put in exactly as much as you need to. If you spend too little on retirement income planning, you won’t have the kind of returns you’ll need later, and if you spend too much, your money will just be wasted.
- Incorrectly Estimating Retirement Age – Most people today retire later than ever before, especially if they have accumulated debt. Retiring with heavy debt is a bad idea, since you could end up struggling to pay that off instead of enjoying your golden years. On the other hand, you may have to retire at a certain age even if you don’t want to!
- Highly Aggressive or Passive Investing – When you’re young, you can afford to be a little aggressive in your investing style, with stocks and other vehicles that offer the chance for higher returns. As you grow older, ensure that your retirement savings are not at risk from market fluctuations. Diversify your portfolio with balanced investments.
- Buying Variable Annuities – These insurance contracts invest your premiums in vehicles similar to mutual funds, and typically involve very high fees, surrender charges and other costs. The benefits rarely add up to significant gains and while they grow tax-deferred, withdrawals are taxed as income.
- Paying Too Much for Investments – When you’re investing funds in any financial vehicle, there is normally some form of expense associated with it, whether as brokerage or management fees, sales and service charges, or commissions. Check for any hidden fees before making an investment and only pay for value added services.
- Trying to DIY It – The process of retirement planning is fairly complex, especially if you want to make the most of your current and projected resources. For those with little to no experience in financial planning, it takes highly qualified individuals like the financial experts at LifeCentra to help you plan for your retirement savings goals.
Let us help you achieve your financial goals today and tomorrow – get in touch with us for a consultation now!