I’m here to tell you, retirement planning is not easy!
Not only is it complicated, it can be downright scary because making some mistakes can mean the difference between feasting on Steak vs. Ramen Noodles!
As retirement nears, there are tons of things to think about, like when to take Social Security, how much to take out of your 401(k), creating a spending plan you can stick to and investing your retirement savings. And like the butterfly effect, tiny decisions now can lead to huge, life-altering consequences down the road.
It is crazy to do this alone and yet only 29% of Americans work with a financial adviser.
Finding the right adviser is important and may take some time. Think of it as you are the boss and you are interviewing them for a a job at your company. It is important to think this way.
In the meantime here are five of the most common money mistakes we can make. Knowing them makes it easier to avoid them.
1. Failing To Plan…
A financial plan is a map plotting the shortest path to reach your retirement goals. Deciding what you’re going to do, where you’re going to do it, how much it’s going to cost and where the money will come from: all parts of your plan. But what if your plans change as you approach retirement? That’s OK. It’s your plan; you’re welcome to change it.
2. Not Saving Right NOW…
According to a recent survey by Bankrate.com, the biggest financial regret is not saving enough for retirement. And why don’t Americans save enough? Because they put it off, saying some variation of, “I’ll wait till I have more money”, or “I’ll start when I get closer to retirement.”
The thing is, the longer you wait, the harder it will be. In other words, starting small but sooner is better than starting large but later.
3. Retiring Too Soon or Not Soon Enough…
If you are thinking about retiring soon, you may dream of quitting your job and traveling the world. However, before you call it quits, there are a number of reasons you may want to think things over. First, you may live longer than you expect, you may run into unforeseen health issues or face tough financial times that force you to cut back.
That’s not to say you shouldn’t retire early, but if that’s your plan, run various scenarios to make sure your savings are going to cover your expenses during retirement and offer a lifetime of income.
Same with not retiring soon enough. If you’re unsure your savings will be adequate, you’ll worry and as a result, perhaps work longer than you have to. You’re much better off knowing what you have and what you’ll need. Replace doubt with certainty and only work as long as you want to.
4. Hiring The Wrong Financial Adviser…
Whether it’s building wealth or securing a comfortable retirement, hiring a financial adviser is a major life decision. Unfortunately, not all are created equal. Hire the wrong adviser and you could end up worse off than when you started.
When it’s time to find someone to assist you, always meet with several planners. Talk to them, ask a similar list of questions and assess their qualifications and advice before making a decision. Ask how they get paid and how long they’ve been in the business. Take your time. And always deal with a fiduciary: a planner who’s legally bound to put your interests above their own.
5. Taking Too Much Risk, Or Not Enough…
Risk is a funny thing. Take too much and you can lose your savings. But take too little and you can lose purchasing power to inflation.
The money you retire with is money that can’t be replaced. That’s why we lean toward low-risk, low-return investments as we age. But as inflation erodes the value of money, that seemingly safe nest-egg drops in value in terms of what it can buy. Bottom line? Often, taking no risk presents risks of its own.
Investing, both before and after retirement, is about balance: harnessing investments designed to keep your income flowing, inflation hedged and risks manageable. Your strategy will require safe, guaranteed-income investments, as well as some exposure to stocks and other inflation-protection investments.
When I was younger I took more risks, now that I’m closer to retirement, I am more risk adverse.
There are so many things that go into retiring comfortably. It can be daunting, but being honest with yourself is maybe the most important thing. How much do you really spend a month, do you really need this or that? Making some sound decisions now will help you in later years. And it is never too late to start looking at your spending habits!