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Retirement Planning Mistakes to Avoid

Retirement Planning Mistakes to Avoid

| January 30, 2024

After working for many years, you might look forward to retirement — a time when you can relax, move to where you always wanted to live, or travel. But to make the most of your retirement, you will need to ensure you have enough money to support your lifestyle during those years. 

About 69% of Americans who aren’t yet retired don’t believe their retirement savings are on track, according to a 2022 report from the Federal Reserve. This number marked an increase from 2021’s 60%. The report also shows that 28% of Americans say they have no retirement savings. 

To help you get on track or start saving for your retirement, take a closer look at some of the top retirement planning mistakes you will want to avoid. 

Starting Saving Later 

One of the most common retirement planning mistakes is waiting to start saving until later. Saving early is crucial because of a key concept: compounding interest. 

For example, If you deposit $5,000 in an account for 10 years at an annual rate of 5% simple interest, you will have $2,500. However, that same deposit in an account with an annual rate of 5% compounding interest for 10 years would yield $8,144. 

Starting to save early allows your money to grow faster and longer, giving you more security for your retirement. 

Carrying Debt Into Retirement 

If you are nearing retirement, continue saving, but rework your budget to pay off high-interest credit cards as well. Also, consider how close you are to retiring if you plan to purchase a new car or put a new roof on your home. 

Make sure you think about the impact on your retirement savings if you plan to make a big-ticket purchase on credit shortly before retiring. High-interest debt can eat away your savings if carried into retirement. 

Failing to Contribute to a Retirement Account 

The days of pension plans are far behind most employers. However, many companies offer employees an opportunity to contribute to a 401(k). And if your company doesn’t have such a defined contribution plan, you can open an investment retirement account (IRA) or Roth IRA. 

You might leave money on the table if you don’t contribute to your company’s 401(k) or don’t deposit enough to take full advantage of a company match. Ensure you resist the temptation to take early distributions from your 401(k). 

Overestimating Savings 

Make sure you are accurately calculating how much money you will need in retirement vs. how much you have saved. A financial professional can help you come up with the most accurate figures. 

Taking Social Security at the Wrong Time 

You might consider taking your Social Security at the earliest possible age of 62 or even at the retirement age of 66 or 67, depending on the year you were born. But taking an early payout will reduce your overall Social Security benefit. If you can, wait until age 70 to maximize your benefit.  

Forgetting to Plan for Taxes 

Make sure you account for all of your assets and investments to help you understand what your tax liability might be in retirement. Often, people believe they will fall into a lower tax bracket as a retiree. However, the multiple retirement income streams available to you might boost you into a higher tax bracket. 

Failing to Plan for Health and Long-Term Care 

While you’re young, you might not think about the effects of old age or consider that you may live for three or more decades after retiring. While Medicare is available to adults 65 and older, you want to be prepared if you develop a serious illness or need to move to a long-term facility, which can be costly. 

Keeping Too Much Risk in a Portfolio 

When you’re investing early, your portfolio should be weighted more toward stocks, which carry a higher risk than bonds and other securities. However, to help protect your nest egg as you move closer to retirement, you should review your asset allocation at least annually and move your money into bonds and cash. 

Additionally, you can have your investment account set up to automatically adjust your allocation as you age.  

Supporting Adult Children 

If you have children, it’s an instinct to want to help your child financially. But consider the impact on your retirement before dipping into your 401(k) or other retirement accounts to pay for a child’s college or downpayment on a home. 

Getting Help With Retirement Planning 

If you’re among the nearly 70% of workers who aren’t sure about retirement savings, consider partnering with a knowledgeable financial advisor from Good Life Financial Advisors of Morehead City. We can evaluate your current circumstances and help you develop a retirement plan that effectively meets your long-term goals.  

Contact us to schedule your no-obligation discovery meeting today.