Taking the time and planning for retirement isn’t just a luxury. It is a necessity. When ensuring your financial well-being in retirement, you cannot afford to make these errors.
Retirement planning is one of the most important financial goals you’ll undertake – and the stakes couldn’t be higher. Do it right and your golden years can be filled with independence, joy, and freedom.
However, make one of these three mistakes and you could face a life of dependence, misery and penny pinching.
Retirement Planning Mistake 1: No Plan
According to the Retirement Confidence Survey from the Employee Benefits Research Institute, 8 in 10 retirees said they were feeling confident that they’ll have enough to live a comfortable retirement, yet only 42% (or 4 in 10) have actually attempted to calculate how much money they’ll need.
Moving through your working years without a plan for retirement is a scary proposition. You can’t make up for lost time, but you can make a plan right now. If you’re early in your working years, that plan could be as simple as maxing out your IRA contributions or increasing your 401(k) contributions every time you get a raise. If you are over 50, you could downsize to slash your living expenses (see more below), then start saving as much as possible.
Financial advisors can help you design your retirement plan and provide the accountability and experience necessary to support you in completing its implementation.
Retirement Planning Mistake 2: Not Saving Enough
How much are you saving for your golden years? Saving $50 or $100 monthly might be fine for your emergency fund, but it’s not fine for your retirement account. You’ll probably need $1 million or more to fund your retirement, and you won’t reach that milestone with small monthly deposits.
If you’ve come this far without building a big enough nest egg to provide financial security, some triage is in order. The good news is it’s not too late if you follow a few key tips:
- Determine the amount of your likely shortfall: take a look at your current budget, subtract expenses you’ll no longer incur as a retiree, and add in money for anything extra you plan to spend on, such as travel. Don’t forget to factor in healthcare expenditures, too.
- Raise your account contributions and take advantage of catch-up contributions: If you’ve projected a retirement shortfall, aim to contribute enough to close the gap between spending and income. This may mean making drastic budget cuts in other areas or even picking up extra income through working more hours or trying out a side job.
- Reduce your cost of living: When you’re falling far short on retirement readiness, downsizing your home and reducing your costs of living may become necessary as a retiree — especially if you can’t work or can’t dramatically increase your savings. Most experts suggest at least 10% to 15% of total income should go into retirement savings over your working life.
- Plan for healthcare costs: According to Fidelity, the average couple will spend $285,000 on healthcare in retirement (not counting long-term care). Stay healthy to lower that figure. Keep in mind that Medicare only covers about 80% of retirement healthcare costs.
Try our retirement calculators here to help provide you with an estimate on your future retirement savings.
Retirement Planning Mistake 3: Under-Utilizing Tax-Advantaged Accounts
Never underestimate the impact taxes can have on your income now and through retirement. Both traditional and Roth IRA and 401(k) options can provide tax-advantaged opportunities that can make a difference in your retirement savings.
Traditional retirement accounts reduce the amount of taxable income for the year they are created. Roth IRA contributions are still taxed as part of your income for the year they’re added into the account, but then they are withdrawn from the account tax-free during retirement.
And if you haven’t heard, the IRS raised the contribution maximum for employer-sponsored retirement accounts in 2020 from $19,000 to $19,500 a year and IRA contributions from $6,000 to $6,500 a year for individuals under 50. That makes now an opportune time to begin catching up on your retirement plan contributions if you’ve found yourself falling behind in recent years.
Final Thoughts
Many people make the mistake of not taking retirement planning seriously enough. Preparing for retirement can bring about a mix of emotions – excitement to leave the workforce and anxiety about affording your ideal standard of living, just to name a few.
Putting in the work now to help avoid these three common retirement pitfalls could mean creating more peace of mind as you look forward to enjoying your years of freedom ahead.
At CKS Summit Group, our only objective is to provide you the most complete, actionable, and unbiased financial information available. If you have any questions about the information in this document or would like help with your retirement planning, contact us here today.