Mistakes in planning for retirement can lead to unnecessary and avoidable stress.
Planning for retirement starts early.
If you started saving at the beginning of your career, you should have a decent nest egg when you are nearing retirement.
Even so, planning does not necessarily equate to wise planning.
According to a recent AARP article titled “10 Retirement Planning Mistakes People Make at 50,” poor planning can prove quite costly in retirement.
What are common mistakes to avoid?
Expecting to work past retirement age.
Although you may want to work into your 60s, you may not have control over when you retire.
Based on data released by Employee Benefits Research Institute (EBRI), some 48 percent people retire earlier than they had expected.
This could happen for a variety of reasons including health issues, layoffs, and family matters.
When these situations happen it can be challenging to find a new job.
Taking too much or too little risk.
When you near retirement, you may be tempted to either invest more aggressively or remove all risk.
Either can cause problems.
In the first instance, rolling the dice a bit too much can lose the very principal that provides your cash flow.
You could lose your hard-earned savings when you do not have time to earn it back.
If you play it too close to the vest, you forfeit further the growth of your wealth.
Your money retires and quits working for you.
Inflation will eat up what remains.
Work with a financial planner to develop a strategy that fits with your circumstances and goals.
Missing the 50-plus catch-up provisions.
Another mistake in planning for retirement involves not taking advantage of a catch up on savings opportunity.
The IRS allows individuals age 50 or older to make an additional $1,000 IRA contribution beyond the Standard $6,000 contribution limit in 2021.
Those in this age range who are “self-employed” can add an additional $3,000 to their SIMPLE IRAs beyond the $13,500 limit.
If those in this demographic have an “employer sponsored” 401(k), they can contribute more than $6,500 beyond the typical $19,500 limit.
If you are still working, you can make a $7,000 contribution in 2021 for a Roth IRA.
Too much credit card debt.
Carrying debt into retirement is not ideal.
Take steps to decrease your credit card debt so you can tackle your mortgage and your retirement funding.
Adding college debt.
One mistake in planning for retirement is to prioritize paying the college educations of you children over saving for your own retirement.
Your children can take out loans and have time to pay them back.
Although you can still help you children with school payments, you should not take out loans you will be unable to repay before retirement.
After all, if you run out of savings paying for the educations of your children, then they will be more likely to “inherit” you when retired!
Overlooking health maintenance.
Your health is important.
By taking preventative measures to foster better health, you may be able to minimize costs associated with medical expenses.
Eating well and exercising can help you enjoy retirement longer while bending the morbidity and mortality actuarial tables in your favor.
Neglecting life insurance.
Insurance is important for several reasons.
It is important to get a long-term care insurance policy to help pay for long-term care as you age.
These policies are challenging to secure the older you get as your health declines.
Life insurance can be helpful to reduce financial strain on your family in case of a premature death.
Fortunately, “hybrid” life insurance policies are available now to help cover the risk of long-term care if needed and the policy death benefit if you do not.
Living the same lifestyle after a divorce.
When it comes to planning for retirement, few people plan for divorce.
Unfortunately, divorce is a significant risk in retirement for many couples.
It can destroy financial security for both the husband and the wife.
If you do experience a divorce, you should recognize your lifestyle will need to change.
You may need to downsize to preserve your assets.
Failing to update important documents.
An outdated or nonexistent estate plan is a problem.
You should create or update your last will, advance health care directive, powers of attorney, beneficiary designations, and trusts with the help of an experienced estate planning attorney.
Letting the market frighten you.
The market can be scary.
It is impossible to control.
Instead of trying to predict it, create a strategy with your financial advisors and stick to the plan.
Planning for retirement should be done with the advice and support of experienced, wise, and knowledgeable individuals.
Reference: AARP (May 11, 2021) “10 Retirement Planning Mistakes People Make at 50”