You must be forward-thinking and realistic about your plans if you want to avoid making the worst retirement mistakes. Regretfully, when it comes to retirement planning, it is far too simple to make poor financial decisions. As per the Federal Reserve, 331 percent of adults who are not retired think that their retirement funds are on course. But none of the 669 percent who feel they are not on track will likely go out and sabotage their retirement or fail to fund it.
Should you belong to the 6%69% of individuals who are not on track with their retirement, you have the option to begin (or resume) your journey by avoiding these 2011 financial blunders.
Retirement should be a time to relax, enjoy your hobbies, and spend time with loved ones. However, many people make mistakes that can sabotage their golden years. In this article, we will discuss the 16 biggest retirement mistakes you’ll regret forever, along with tips on how to avoid them.
1. Not Saving Enough
The biggest financial regret of Americans surveyed by Forbes was waiting too long to start saving for retirement. Not surprisingly, baby boomers expressed this regret at a much higher rate than younger respondents.
- Solution: Start saving early and often. The sooner you start, the more time your money has to grow. Aim to save at least 10-15% of your income for retirement.
2. Claiming Social Security Too Early
You’re entitled to start taking retirement benefits at 62, but you might want to wait if you can afford it. Most financial planners recommend holding off at least until your full retirement age — 67 for anyone born after 1959 — before tapping Social Security. Waiting until 70 can be even better.
- Solution: Delay claiming Social Security until your full retirement age or later to maximize your monthly benefits.
3. Borrowing from Your 401(k)
Taking a loan from your 401(k) retirement-savings account can be tempting. After all, it’s your money. As long as your plan sponsor permits borrowing, you’ll usually have five years to pay it back with interest.
- Solution: Avoid borrowing from your 401(k) unless it is absolutely necessary. If you must borrow, pay it back as quickly as possible.
4. Putting Your Kids First
Sure, you want your children to have the best — best education, best wedding, best everything. And if you can afford it, by all means open your wallet. But footing the bill for private tuition and lavish nuptials at the expense of your own retirement savings could come back to haunt all of you.
- Solution: Help your children with their education and weddings, but don’t sacrifice your own retirement savings in the process.
5. Buying into a Time-Share
It’s easy to see the appeal of a time-share during retirement. Now that you’re free from the 9-to-5 grind, you can visit a favorite vacation spot more frequently. And if you get bored, simply swap for slots at other destinations within the time-share network. Great deal, right? Not always.
- Solution: Avoid buying into a time-share. If you already own one, consider selling it or renting it out.
6. Avoiding the Stock Market
Shying away from stocks because they seem too risky is one of the biggest mistakes investors can make when saving for retirement. True, the market has plenty of ups and downs, but since 1926 stocks have returned an average of about 10% a year. Bonds, CDs, bank accounts, and mattresses don’t come close.
- Solution: Invest in a diversified portfolio of stocks and bonds to grow your retirement savings.
7. Ignoring Long-Term Care
We all want to believe we’ll stay healthy and motoring long into our retirement years. A good diet, plenty of exercise, and regular medical check-ups help. But even the hardiest of retirees can fall ill, and even without a serious illness, time will take its inevitable toll on mind and body as you progress through your 70s, 80s, and 90s.
- Solution: Plan for long-term care costs by purchasing long-term care insurance or a qualified longevity annuity contract (QLAC).
8. Neglecting Estate Planning
Estate planning isn’t just for the wealthy. Even if your assets are modest — perhaps just a car, a home, and a bank account — you still want to have a valid will to specify who gets what and who will be in charge of dispersing your money and possessions (a.k.a. the executor).
- Solution: Create a comprehensive estate plan that includes a will, durable power of attorney, health-care directives, and beneficiary designations.
9. Borrowing against Your Home
It’s tempting for retirees who are house rich but cash poor to tap the equity that’s built up in a home. This is especially true if the mortgage is paid off and the property has appreciated substantially in value. But tempting as it might be, think hard before taking on more debt and monthly payments at precisely the time when you’ve stopped working and your income is fixed.
- Solution: Explore ways to lower your housing costs, such as downsizing, selling and moving to a cheaper city, or finding a roommate.
10. Failing to Plan How You’ll Fill Your Free Time
A friend of mine had a nice government job. One of the perks was early retirement. He went for it. But not long after, he informed me he was going back to his old position, albeit two days a week. “There’s only so many movies to see alone during the day in an empty theater,” he said. “That got old fast.”
- Solution: Plan how you will fill your free time in retirement. Consider taking a part-time job, pursuing a hobby, or returning to school.
11. Downsizing Your 401(k) Contributions While You’re Working
Unusually large tax bills in our household forced us to scale back on contributions to our retirement savings last year. That’s an area to tread lightly in, financial experts note.
- Solution: Avoid reducing your 401(k) contributions unless absolutely necessary. If you must reduce them, aim to increase them again as soon as possible.
12. Ignoring Your Target Date
Half of 401(k) savers are 100% invested in a target date fund, says Murphy of Fidelity Investments. That target date is an approximation of when you are going to retire. These funds become more conservative the closer that date approaches. That means the other 50% are investing on their own and may not be keeping a close eye on how much equity exposure they have, notes Murphy.
- Solution: Regularly review your target date fund and make adjustments as needed. If you are unsure how much risk you should be taking, consider working with a financial advisor.
13. Relocating on a Whim
The lure of warmer climates has long been the siren call of many who are approaching retirement. So, you’re cooking up a plan to head south to Florida, or maybe you’re considering relocating to one of the many places to retire if you’re sick of the heat. Our advice: Test the waters before you make a permanent move.
- Solution: Spend extended vacation time in your chosen retirement destination before making a permanent move.
14. Falling for Too-Good-to-Be-True Offers
Hard work, careful planning, and decades’ worth of wealth-building are the keys to a secure retirement. There are no shortcuts. Yet, Americans lose hundreds of millions of dollars a year to get-rich-quick and other scams, according to the FTC, as elder fraud runs rampant.
- Solution: Be wary of any investment or offer that promises high returns with little risk. Do your research and consult with a financial advisor before investing any money.
15. Planning to Work Indefinitely
Many baby boomers like me have every intention of staying on the job beyond age 65, either because we want to, we have to, or we desire to maximize our Social Security checks. But that plan could backfire.
- Solution: Don’t rely on being able to work indefinitely to fund your retirement. Save early and often, and have a backup plan in case you are unable to work.
16. Decluttering to the Extreme
My parents are in their late-80s, early 90s and have been living in the same house for decades. In recent years they have started getting rid of a lot of the bric-a-brac they’ve accumulated. Their goal is to make it easier for my brother and I down the road when we inherit the home.
- Solution: Be careful about what you throw out in haste. Keep important documents, sentimental items, and anything else that might have value.
By avoiding these 16 common mistakes, you can set yourself up for a happy and financially secure retirement. Remember, it’s never too late to start planning for your future.
Additional Tips for a Successful Retirement
- Start saving early and often.
- Invest your money wisely.
- Create a budget and stick to it.
- Downsize your home if necessary.
- Stay healthy and active.
- Enjoy your retirement!
By following these tips, you can ensure that you have a comfortable and enjoyable retirement.
Not Planning for Health Costs
The Fidelity Retiree Health Care Cost Estimate estimates that, in order to pay for health care expenses in retirement, an average retired couple, age 65 in 2023, might need to save about $315,000 (after taxes).
Work to keep yourself healthy to lower that figure. Remember that Medicare does not pay for all medical expenses related to retirement. Make sure you have extra insurance or have the cash on hand to cover the difference.
Cashing out Savings
If you take out all or a portion of your retirement fund before the age of twenty-five percent (C2%BD), your plan sponsor will deduct 2020 percent to cover penalties and taxes, meaning you won’t get the full amount. Future earnings will be lost because most people never make up the lost ground.
Other issues to watch out for are as follows:
- leaving less than $5,000 in a business account without making a treatment request when changing jobs The employer might deposit it into an IRA on your behalf following the withholding of 2020%. This may lead to expensive fees that deplete your savings.
- You have sixty days to transfer funds to another eligible retirement account before taxes and penalties are applied. To get around the 60-day rule, you can ask for a direct rollover or trustee-to-trustee transfer.
Increase your savings in tax-advantaged accounts like a health savings account (HSA), which allows you to pay for qualified healthcare expenses in retirement tax-free, to help with retirement healthcare costs.
The BIGGEST Retirement Mistake for 2024 | Retirement Travelers
FAQ
What is the number one regret of retirees?
What is the 3 rule in retirement?
Are You making a big retirement mistake?
According to a recent study by U.S. Bank, only 41% of Americans say they use a budget. This can be a big retirement mistake — especially as you enter retirement. When you are working, it is perhaps reasonable that you get by month to month and just do some mental accounting to make sure that bills are paid and accounts are not overdrawn.
Are retirement mistakes avoidable?
The good news is, these mistakes are avoidable – especially if you plan ahead. The first, and biggest, retirement mistake that many people make, is not having an adequate retirement plan in place. A 2020 report from the Federal Reserve found that fewer than four in ten non-retired adults felt their retirement savings were on track.
Are You making a mistake when retiring early?
A huge mistake people make when retiring, especially retiring early, is not having a plan for their life. Sometimes people want so badly to get out of a job or just not be working that they find retirement boring. They whither away. Instead, have a plan for what you will do in retirement.
Do retirement mistakes increase your chances of outliving your money?
Retirement mistakes can increase the chances of outliving your money. Getting an objective second opinion can help. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.