While most working people hope to achieve retirement, planning for the same is not easy. A lot of variables like the future cost of living, the housing market, life expectancy, etc., need to be accounted for. Knowing just how much you will need for you to live comfortably for the rest of your life can be quite a challenge.
You will encounter many different financial strategies, services, products, and investment opportunities when planning for retirement. But, as you might expect, while some of these investments will make a lot of sense, others will not be just cut out for you.
Identifying the most common traps and mistakes to avoid will inevitably make your retirement planning a lot easier. The more research, reading, and consulting with financial advisors you do, the easier it will be for you. And while at it, try to avoid the following retirement planning mistakes/traps.
Lack of Foresight
You may feel that you are too young to think about retirement, or that thinking about it makes you anxious. It’s understandable but be aware that the most common retirement problem is a lack of planning.
Take the time to define your retirement plan. Generally, the longer you wait to save, the harder it will be to reach your goal.
Get the right tools to prepare your financial plan, first for the short term, then for the long term. See it as a long-term endeavour, a project that you handle little by little – step by step. Because, like any project, retirement can be planned.
Finally, if possible, provide some financial leeway to deal with certain eventualities that are likely to occur.
Don’t Be Overly Optimistic
Do you contribute to the retirement plan offered by your employer?
Thinking of financing your retirement years with the value of your property?
This is a good start, but unfortunately, it is not enough. It might take more to give you peace of mind in retirement.
Correct the situation by setting savings goals. Above all, remember to review your savings plan annually or following a major change in your personal situation, whether financial or family.
Not Diversifying Your Investment
In addition to contributing to the registered plan offered by your employer, put money aside elsewhere. Make your money work for you by investing it in different products.
The key to protecting yourself against inflation or market corrections is diversification. So, think about diversifying your investments, rather than concentrating them on a single product.
Keep in mind that your average returns should be, at very least, the same as inflation, otherwise your capital will be wiped out over time.
Neglecting the Importance of the Financial Planner
At comparable wages, people who have a financial planner have 69% more financial assets than those who do not. That says something!
So don’t hesitate to refine your retirement plan by following the advice of a financial planner. A few annual meetings are enough to guide you in the right direction.
In addition to specifying your concrete savings goals, the planner will help you diversify your savings and disbursement strategies to better plan your income after retirement.
Also, take advantage of their expertise to review your calculations regularly. Your savings needs and your situation may change with age.
Retiring Too Early
Some people decide to retire early without checking whether they have enough assets to ensure a comfortable life. It’s important to understand your situation before you rush into retirement - a few more years of working contributing to a pension fund, 401(k), or simple savings could pay off in the next few years.
But many people suddenly decide they need to retire early. Approximately one in two people retire faster than expected because of a health problem or a job change. If you have an opportunity to work a little while longer, take it.
Not Saving Enough
The Federal Reserve’s 2016 US Household Economic Well-Being Report found that 28% of non-retired adults had no savings whatsoever to prepare for retirement. And about half of the population felt uncertain about their ability to manage their money in retirement.
The average amount people had saved for retirement was $ 60,000, which is clearly insufficient to live comfortably for 20 years or more. When determining how much money you will need to save before you can retire comfortably, you need to have a clear idea of your current and future expenses.
Don’t Underestimate your Living Expenses
People tend to think that they will spend less when they retire, and it is true that some expenses – travel costs, for example – will indeed decrease. Other expenses, however, could increase. For example, you might want to spend more money on leisure activities like dining out with friends or traveling more. Your heating bills can go up if you stay home all day rather than spending your active hours in your employer’s heated offices.
It is generally estimated that your retirement budget should represent 80% of your current expenses. And remember that because of inflation, your budget will not allow you to support yourself for as many years as it does today.
Splurging At the Start of Retirement
This is tempting. When you suddenly have a large amount of money at your disposal and you’ve worked hard your whole life, it’s understandable to want to splurge a bit treating yourself to a round-the-world cruise or a golf club membership, etc.
But unless planned, these kinds of expenses could put you in all kinds of financial hardship. A lot of times people spend too much early in retirement. Retirement means a lot of free time, and sometimes we see people throwing their money right out the window. Paying attention to your expenses will make your retirement much more comfortable.
Underestimating Medical Costs
Medical costs are likely to increase with age, and spending on medical care is a big issue in retirement. Many people ignore dentist bills, for example.
Let’s face it: our teeth don’t necessarily last our entire lives. And most medical insurance coverage doesn’t include dental care. This would have you spending up to 20,000 that you had not set aside. Dental care seems to be a bigger issue than medical costs for most people that we have interacted with.