Factors like debt, income, and expenses affect your ability to save, but retirement is not only about saving; it involves a great deal of planning. When it comes to retirement planning, there’s no one-size-fits-all solution, but there are mistakes to avoid. For solid retirement planning, you need to get the timing right, seize the opportunity and not fall victim to the myths that can destroy your retirement. For Gen-X, who are nearing retirement, and baby boomers, here are six of the most common mistakes made by retirees that you will want to avoid:
Mistake #1: Not having a Retirement Plan
Not having a retirement plan is possibly the worst mistake to make as you age. If you don’t have a retirement plan, your future can be bleak. You will have no idea how much money you will need to have a comfortable retired life or how much you will have when you retire.
The Fix: If you don’t have a retirement plan, it’s never too late to start. Determine what you want to future to look like and start putting aside the money you need to live that life.
Some employers offer 401(k). So make maximum use of these employer-sponsored accounts where the employer has to make a matching contribution. You can also consider opening a self-directed IRA, which can offer greater returns and better diversification than traditional retirement accounts.
Retirement Planning Mistakes #2: Ignoring Inflation
Inflation is the rise in goods and services that greatly reduces the value of money and affects your buying power. If you want your retirement fund to last for long, you cannot afford to ignore inflation.
The Fix: Factor in the inflation rate when planning your savings after leaving the job world. It is recommended to calculate the inflation rate at 3% when making a realistic assessment of your retirement planning to avoid mistakes.
Mistake #3: Going into retirement with hovering debts
If you carry a massive amount of debt into retirement, it will eat up your retirement fund.
The Fix: Make a plan to eliminate debt before you retire. If needed, seek expert help.
Mistake #4: Not getting Adequate Insurance Cover
Healthcare in retirement is not cheap at all. Your healthcare costs in retirement are going to rise.
It’s important to have adequate health insurance to cover these medical expenses, though. Otherwise, you will have to forego retirement savings to cover the cost of a medical emergency.
The Fix: Accept the reality that healthcare costs will rise and make provisions in advance. Prepare for it by staying covered for every adversity with adequate insurance.
Retirement Planning Mistakes #5: Not Planning the Taxes Properly
Not having a clear idea of whether your tax bracket will be higher or lower in retirement is another mistake you could make in retirement planning. Poor tax planning can attract high taxes, which will reduce your retirement fund further.
The Fix: If you think you’ll be in a higher tax bracket in retirement than you are in your working years, it’s wise to invest in a Roth 401(k) or Roth IRA, where you pay the tax when making your contributions and your withdrawals in retirement are tax-free.
If you think your taxes will be lower in retirement, consider investing in a traditional IRA or 401(k) plans, where contributions are tax-free. Remember that there is tax on withdrawals.
Mistake #6: Not Diversifying Your Portfolio
Investing all your money in one class of investments is not the brightest thing to do with your retirement money. Doing so makes you vulnerable to market fluctuations, where you are at risk of losing lots of hard-earned money.
The Fix: From a diversification and risk management perspective, you should not hold more than 5-10% of any one type of stock in your portfolio. This is to protect your portfolio if that particular investment goes awry.
Bottom Line on Retirement Planning Mistakes
Regardless of where you are on the retirement journey, you are likely to make at least one of the above mistakes. In addition to following the tips mentioned above, seek advice from a trusted financial advisor to stay or get back on track. Also see a professional about estate planning as you near retirement.
About Today’s Writer
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at email@example.com or visit www.sdretirementplans.com.